Management’s Discussion and Analysis13.3%). Per the third estimate released by the U.S. Bureau of Economic Analysis, U.S. real gross domestic product (GDP) declined by 5.0% in the

2020Second QuarterReportJ U N E 3 0 , 2 0 2 0

Farm Credit Bank of Texas

Second Quarter 2020 Financial Report

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations ................................................................................................ 2 Controls and Procedures ................................................................................................... 15 Financial Statements: Balance Sheets ............................................................................................................... 18 Statements of Comprehensive Income .......................................................................... 19 Statements of Changes in Shareholders’ Equity ............................................................ 20 Statements of Cash Flows .............................................................................................. 21 Notes to Financial Statements ........................................................................................... 22

Additional Regulatory Information ................................................................................... 50


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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollars in thousands, except as noted) The following discussion reviews the financial condition and results of operations of the Farm Credit Bank of Texas (bank) for the three and six months ended June 30, 2020. These comments should be read in conjunction with the accompanying financial statements and footnotes, along with the 2019 Annual Report to shareholders. The accompanying financial statements were prepared under the oversight of the bank’s audit committee. The bank is a member of the Farm Credit System (System), a nationwide network of cooperatively owned financial institutions established by and subject to the provisions of the Farm Credit Act of 1971, as amended, and the regulations of the Farm Credit Administration (FCA) promulgated thereunder. The United States is currently served by three Farm Credit Banks (FCBs), each of which has specific authority to fund affiliated associations and other financing institutions (OFIs) which make loans to agricultural producers, farm-related businesses and rural homeowners within a regional chartered territory (or district), and by one Agricultural Credit Bank (ACB), which has the lending authority of an FCB within its chartered territory and nationwide authority to finance agricultural cooperatives and rural utilities. The FCBs and the ACB are collectively referred to as “System banks.” As FCBs, the primary purpose of the System banks is to serve as a source of funding for System associations within their districts. The System associations make loans to or for the benefit of borrowers for qualified purposes. At June 30, 2020, the bank provided financing to 14 district associations and certain OFIs. The accompanying financial statements exclude financial information of the bank’s affiliated associations. The bank and its affiliated associations are collectively referred to as the “Texas District.” The bank separately publishes certain unaudited combined financial information of the Texas District, including a condensed statement of condition and statement of income, which can be found on the bank’s website at www.farmcreditbank.com. Such information is not incorporated by reference to, and should not be considered part of, this quarterly report. MATERIAL AND SIGNIFICANT EVENTS In June of 2020, the association Class A common stockholders of the bank approved an amendment to the bank’s Capitalization Bylaws. The amendment became effective in June of 2020 and enlarged the authorized number of shares of preferred stock that may be issued by the bank to that number of shares that will result in a total par value of issued and outstanding preferred stock not to exceed $1.5 billion at any one time. On July 15, 2020, the bank issued $350.0 million of Class B noncumulative subordinated perpetual preferred stock, Series 4 (Class B-4 preferred stock), representing three hundred fifty thousand shares at $1,000 per share par value, for net proceeds of $346.2 million with estimated issuance costs of $3.8 million. Dividends on the Class B-4, if declared by the board of directors at its sole discretion, are noncumulative and are payable quarterly in arrears on the fifteenth day of March, June, September and December in each year, commencing September 15, 2020, at an annual fixed rate of 5.70% of par value of $1,000 per share up to, but excluding, September 15, 2025, from and after which date will be paid at an annual rate of the five-year Treasury rate as of the most recent five-year reset dividend determination date plus 5.415%. The Class B-4 is not mandatorily redeemable at any time, but may be redeemed in whole or part at the option of the bank, with prior approval from the FCA, on any dividend payment date on or after September 15, 2025. The Class B-4 ranks pari passu with respect to the existing Class B-1, Class B-2 and Class B-3 preferred stock and senior to all of the bank’s other outstanding capital stock. For


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regulatory purposes, the Class B-4 preferred stock is included in permanent capital, total capital and tier 1 capital within certain limitations. On July 20, 2020, the bank notified holders of the bank's 10% Class B perpetual non-cumulative subordinated preferred stock, Series 1 (Class B-1), of its right to redeem all of the outstanding Class B-1 preferred stock at a total price of $1,000 per share, together with an amount equal to all dividends accrued and unpaid up to, but not including, the redemption date. The redemption date is August 19, 2020, and the redemption price is equal to $1,017.777 per share or $305,333,333.33 in total. CONDITIONS IN THE TEXAS DISTRICT The United States has been operating under a presidentially declared emergency since March 13, 2020, due to the Coronavirus Disease 2019 (also referred to as COVID-19). The bank continues during these unprecedented times to fulfill its mission to support agriculture and rural communities by providing access to reliable and consistent credit. Loan volume increased as borrowers at both the affiliated associations and within the bank’s participations purchased portfolio increased their liquidity and cash positions. The bank increased its cash position to accommodate the potential liquidity needs of those borrowers through the end of the first quarter of 2020 but lowered the cash position at the end of June 2020 as market conditions returned to normalcy. The bank has been able to maintain access to the debt market to redeem and replace callable debt and fund incremental needs without significant changes to its funding strategies or interest rate risk profile. The impact to the value and liquidity of the liquidity investment portfolio has been limited. In addition, the portfolio primarily consists of federal agency-guaranteed collateralized mortgage-backed securities, agency-guaranteed debt and U.S. Treasury securities. Thus, no other-than-temporary impairment losses were recognized during the second quarter of 2020. The bank is closely monitoring its loan portfolio overall and has adjusted its portfolio monitoring and servicing practices. The credit quality of the bank’s loan portfolio continues to remain strong. For the quarter ended June 30, 2020, the bank recorded a qualitative general reserve of approximately $1.0 million for specific sectors within its participations purchased portfolio due to uncertainty from the COVID-19 pandemic. Capital levels remained strong to support any adversity or continuing loan demand. Operationally, the bank continues to function as normal during these challenging times. The bank has witnessed the benefits of past and current technology initiatives which allow both bank and association personnel to work remotely and support both their families and their customer base. Bank staff continue to work remotely with no established transition plan back into the bank’s physical location until further developments with COVID-19 occur. The bank’s internal controls over financial reporting and disclosure controls and procedures continue to operate effectively and no material changes to the controls or financial systems have occurred or are contemplated. On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Among other provisions, the CARES Act provided funding and authority to bolster certain programs offered by the United States Department of Agriculture (USDA). On April 17, 2020, the USDA announced a $19 billion Coronavirus Food Assistance Program (CFAP), that provides a $16 billion program of direct payments for agricultural producers that have been impacted by the decline in commodity prices and the disruption in food supply chains related to COVID-19, and a $3 billion food purchase and distribution program. The CARES Act also appropriated funds for the Paycheck Protection Program (PPP), a guaranteed loan program administered by the U.S. Small Business Administration (SBA). The purpose of the program is to support payroll and certain other financial needs of small businesses during the COVID-19 pandemic. The impact of the support programs for agriculture and related industries is undeterminable at this point in time. As a service provider to its affiliated associations, the bank has facilitated technology and operational changes to provide relief to association borrowers affected by COVID-19 in the form of extending the terms of loan repayments, easing some loan documentation requirements and facilitating participation in


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the SBA PPP. The bank has also provided payment deferral programs for borrowers directly affected by COVID-19 as an aspect of its participations purchased portfolio. To date, the loan volume and number of borrowers impacted has been minimal due to the nature of that portfolio. The potential impact of COVID-19 on the global, U.S. and district economies creates a high degree of economic uncertainty; however, it is too early to assess the potential impact as conditions continue to unfold. The bank will closely monitor the situation in the coming quarters. On July 2, 2020, the U.S. Bureau of Labor Statistics (BLS) reported that total nonfarm payroll employment rose month-over-month by 4.8 million in June 2020, and the U.S. unemployment rate declined to 11.1%. Job gains observed in recent weeks have generally been attributable to the partial resumption of economic activity following the initial impact of the COVID-19 pandemic. Although unemployment fell in both May and June of 2020, the jobless rate and the number of unemployed are up by 7.6 percentage points and 12.0 million, respectively, since February. According to BLS estimates, the unemployment rates across the bank’s district ranged from a low of 9.2% in New Mexico to a high of 13.3% in Louisiana in May 2020 (comparatively, the national unemployment rate in May 2020 was 13.3%). Per the third estimate released by the U.S. Bureau of Economic Analysis, U.S. real gross domestic product (GDP) declined by 5.0% in the first quarter of 2020. Several district states’ economies contracted at a below-average pace compared to the rest of the country, with Texas reporting a 2.5% decrease in activity. Official estimates of second quarter GDP growth are not yet available, but many economists expect U.S. real GDP to decline at an annualized rate of more than 30.0%. Uncertainty regarding the future trajectory of the U.S. and global economies is historically high due to COVID-19. According to the U.S. Energy Information Administration (EIA), the spot price of West Texas Intermediate crude oil averaged $38 per barrel during June 2020, a notable increase compared to March 2020 ($29 per barrel), April 2020 ($17 per barrel) and May 2020 ($29 per barrel). Although oil prices have increased in recent weeks, they remain significantly lower year-over-year due primarily to reductions in global demand associated with COVID-19. According to EIA’s June 2020 Short Term Energy Outlook, West Texas Intermediate oil prices are projected to average about $35 per barrel in 2020. The U.S.-Mexico-Canada Agreement (USMCA) became effective on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). The implementation of USMCA provides much-needed certainty for exporters and importers operating across North America, including agricultural producers and agribusinesses. According to the USDA, about 29.0% of all U.S. farm and food exports were shipped to Mexico or Canada in 2019. USMCA includes provisions improving market access for U.S. dairy and poultry products, among other items, per USDA. In the June 2020 World Agricultural Supply and Demand Estimate (WASDE) report, USDA projected lower season-average prices in the 2020/2021 marketing year for several crops, including corn, soybeans and cotton. In late June 2020, however, USDA’s Acreage report indicated significantly lower-than-anticipated planted area for corn and cotton. This publication led to volatility in futures markets for affected commodities, and it may compel USDA to revise its price expectations in future publications. COVID-19 impacted many livestock and dairy processing operations during the quarter. Factors affecting companies included facility closures and a significant decline in foodservice demand. These issues led to significant short-term declines in livestock and dairy component prices. By the end of June 2020, beef, hog and poultry slaughter were back to pre-COVID-19 levels, but carcass prices remained lower year-over-year. Meanwhile, Class III milk prices were historically volatile this quarter, falling from $16.25 per hundredweight in March 2020 to $12.14 in May 2020 before rising to $21.04 in June 2020. According to USDA projections released in June 2020, livestock and milk prices will generally average lower in 2020 compared to 2019.


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Farmers in the district utilize risk management tools, such as Federally-sponsored crop insurance programs and forward, futures and options contracts, to mitigate risk and enhance margins. The district portfolio continues to be supported by strong credit quality, high levels of capital, low advance rates and diversification. RESULTS OF OPERATIONS

Net Income Net income for the three months ended June 30, 2020, was $58.2 million, an increase of $7.6 million, or 15.07%, over the same period of 2019. The increase in net income was primarily driven by a $16.2 million increase in net interest income, offset by a $6.0 million decrease in noninterest income, a $1.9 million increase in noninterest expense and a $724 increase in provision for credit losses. Net income for the six months ended June 30, 2020, was $108.6 million, an increase of $13.5 million, or 14.15%, over the same period of 2019. The increase in net income was primarily driven by a $23.8 million increase in net interest income, offset by a $5.3 million decrease in noninterest income, a $4.9 million increase in noninterest expense and a $169 increase in provision for credit losses. Net Interest Income Net interest income for the three months ended June 30, 2020, was $82.7 million, an increase of $16.2 million, or 24.40%, from the three months ended June 30, 2019. The increase in net interest income was attributable to a $1.9 billion increase in the bank’s average earning assets and a 27-basis-point increase in the net interest rate spread from 92 basis points to 119 basis points. The increase in net interest rate spread was due to an 87-basis-point decrease in the average rate of debt, as compared to a 60-basis-point decrease in the rate on earning assets. The net interest margin of 125 basis points for the three months ended June 30, 2020, was 17 basis points higher than the three months ended June 30, 2019. Net interest income for the six months ended June 30, 2020, was $154.1 million, an increase of $23.8 million, or 18.27%, from the six months ended June 30, 2019. The increase in net interest income was attributable to a $1.5 billion increase in the bank’s average earning assets and a 19-basis-point increase in the net interest rate spread from 92 basis points to 111 basis points. The increase in net interest rate spread was due to a 60-basis-point decrease in the average rate of debt, as compared to a 41-basis-point decrease in the rate on earning assets. The net interest margin of 120 basis points for the six months ended June 30, 2020, was 12 basis points higher than the six months ended June 30, 2019. During the three months ended June 30, 2020, the bank called $4.99 billion in debt and recognized $7.1 million in accelerated concession expense as compared to $1.10 billion in debt called and $1.9 million in accelerated concession expense for the same period in 2019. During the six months ended June 30, 2020, the bank called $11.45 billion in debt and recognized $14.3 million in accelerated concession expense as compared to $1.87 billion in debt called and $3.5 million in accelerated concession expense for the same period in 2019. The year-over-year increase in callable debt redemptions reflected the substantial downward move in interest rates across the yield curve that occurred throughout the first six months of 2020. During this period, the bank maintained sufficient market access to redeem and replace callable debt, fund incremental needs, and increase liquidity without significant changes to funding strategies or interest rate risk profiles. Provision for Credit Losses The provision for credit losses for the three months ended June 30, 2020, totaled $881, an increase of $724 from the $157 provision for credit losses recorded for the same period of 2019. The increase was due to $1.0 million of qualitative general reserves for the participations purchased loan portfolio due to uncertainty from the COVID-19 pandemic in the following sectors: beef cattle, dairy, other livestock production and processing, oil and gas, and forestry and wood processing. In addition, general reserves


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increased $674 due to loan volume growth and limited credit quality deterioration in certain sectors, which were partially offset by the reversal of specific reserves of $809 related to improved performance on a nonaccrual loan, compared with the same period of 2019. The provision for credit losses for the six months ended June 30, 2020, totaled $586, an increase of $169 from the $417 provision for credit losses recorded for the same period of 2019. The increase was primarily due to $1.0 million of qualitative general reserves for the participations purchased loan portfolio due to uncertainty from the COVID-19 pandemic in the following sectors: beef cattle, dairy, other livestock production and processing, oil and gas, and forestry and wood processing. The increase was partially offset by the reversal of specific reserves of $821 related to improved performance on a nonaccrual loan, compared with the same period of 2019. Noninterest Income Noninterest income for the three months ended June 30, 2020, was $7.1 million, a decrease of $6.0 million, or 45.91%, over the same period of 2019. The decrease was due mainly to a $7.5 million gain resulting from the sale of investment securities during June 2019, offset by a $2.0 million increase in fees for loan-related services. Noninterest income for the six months ended June 30, 2020, was $17.1 million, a decrease of $5.3 million, or 23.61%, over the same period of 2019. The decrease was due mainly to a $7.5 million gain resulting from the sale of investment securities during June 2019, offset by a $3.2 million increase in fees for loan-related services. Noninterest Expense Noninterest expense for the three months ended June 30, 2020, was $30.7 million, an increase of $1.9 million, or 6.47%, over the same period of 2019. The increase primarily consisted of a $2.0 million increase in occupancy and equipment expense related to depreciation and maintenance expense on computer equipment and software. Noninterest expense for the six months ended June 30, 2020, was $62.0 million, an increase of $4.9 million, or 8.56%, over the same period of 2019. The increase primarily consisted of a $3.2 million increase in occupancy and equipment expense related to depreciation and maintenance expense on computer equipment and software, and a $2.0 million increase in salaries and employee benefits due to normal merit increases and increased staffing.

Key results of operations comparisons:Annualized for the Annualized for theSix Months Ended Six Months Ended

June 30, 2020 June 30, 2019Return on average assets 0.79% 0.73%Return on average shareholders' equity 11.14% 9.94%Net interest income as a percentage of average earning assets 1.20% 1.08%(Recoveries), net of charge-offs to average loans <(0.01)% <(0.01)%Operating expenses as a percentage of net interest income and noninterest income 36.20% 37.39%Operating expenses as a percentage of average earning assets 0.48% 0.47%

Other Comprehensive Income (Loss) Other comprehensive income (loss) consists of certain gains, losses or costs for which values are included in assets or liabilities on the balance sheets but have not yet been recognized in earnings. On the balance sheets, they are included in accumulated other comprehensive loss in the shareholders’ equity section. These


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elements include unrealized gains or losses on the bank’s available-for-sale investment portfolio, changes in elements of postretirement benefit plans and changes in the value of cash flow derivative instruments. The table below summarizes the changes in elements included in other comprehensive income:

2020 2019

Change in unrealized gains on available-for-sale securitiesNet increase in unrealized gains on investment securities 89,150$ 82,853$ Gain on sale reclassifications to net income - (7,516)

Net change in unrealized gains on investment securities 89,150 75,337

Change in postretirement benefit plans Amounts amortized into net periodic expense:Amortization of prior service credits (40) (39)

Net change in postretirement benefit plans (40) (39)

Change in cash flow derivative instrumentsUnrealized losses on cash flow derivative instruments (75,197) (45,238) Reclassification of losses (gains) recognized in interest expense 4,652 (101)

Net change in cash flow derivative instruments (70,545) (45,339) Other comprehensive income 18,565$ 29,959$

Six Months EndedJune 30,

FINANCIAL CONDITION

Loan Portfolio Gross loan volume at June 30, 2020, was $20.64 billion, an increase of $1.14 billion, or 5.83%, compared to $19.50 billion at December 31, 2019. The increase in the loan portfolio was attributable to growth in the bank’s direct notes from associations and the participations purchased loan portfolio. The growth in volume for loan participations resulted from borrowers increasing their liquidity and cash positions as a result of the unknown impact of the COVID-19 virus. The bank’s capital markets loan portfolio, also referred to as the participations purchased loan portfolio, predominantly includes participations, syndications and purchased whole loans, along with other financing structures within our lending authorities. In addition to purchasing loans from our district associations, which may exceed their hold limits, the bank seeks the purchase of participations and syndications originated outside of the district’s territory by other System institutions, commercial banks and other lenders. These loans may be held as earning assets of the bank or sub-participated to the associations or to other System entities. The bank has purchased loan participations and Federal Agricultural Mortgage Corporation (Farmer Mac) guaranteed agricultural mortgage-backed securities (AMBS) from associations in Capitalized Participation Pool (CPP) transactions. As a condition of the transactions, the bank redeemed common stock in the amount of 2.0% of the par value of the loans purchased, and the associations purchased bank stock equal to 8.0% of the purchased loans’ par value and 1.6% of the AMBS’ par value. During the first six months of 2020, the bank purchased $10.2 million in loan participations from an association, which resulted in a net stock issuance of $610. CPP loans held at June 30, 2020, totaled $119.5 million and were included in loans on the balance sheet. The balance of the AMBS CPP was $25.0 million at June 30, 2020, and was included in investment securities on the balance sheet.


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The bank may also purchase loans from district associations in Non-Capitalized Participation Pool (NCPP) transactions. There were no NCPP loan purchases for the six months ended June 30, 2020. The NCPP loans’ balance was $132.7 million at June 30, 2020, and was included in loans on the balance sheet. Loans classified under the Farm Credit Administration’s Uniform Loan Classification System as either acceptable or other assets especially mentioned were 99.6% and 99.5% of total loans and accrued interest at June 30, 2020, and December 31, 2019, respectively. During the second quarter of 2020, the bank changed the classification on the direct notes to two of its affiliated associations to the acceptable credit quality classification. The direct notes had previously been reflected in the special mention credit quality classification. As of June 30, 2020, the outstanding direct note balances for the two associations totaled $1.21 billion. The bank had not recorded any allowance for credit loss related to the direct notes. The table below summarizes the balances of the bank’s nonperforming assets at June 30, 2020, compared to the balances at December 31, 2019:

June 30, 2020 December 31, 2019 $ %Nonaccrual loans 16,212$ 16,765$ (553)$ (3.30) %Accruing loans past due 90 days or more 636 229 407 177.73 Accruing formally restructured loans 2,372 2,450 (78) (3.18) Total nonperforming assets 19,220$ 19,444$ (224)$ (1.15) %

Change

The decrease in nonaccrual loans and accruing formally restructured loan balances at June 30, 2020, reflected repayments on the loans within these nonperforming asset types. The increase in loans 90 days or more past due but still accruing at June 30, 2020, was associated with one loan that is adequately secured. At June 30, 2020, and December 31, 2019, the bank did not have any nonaccrual loans with cash payments recognized as interest income and did not have any other property owned (OPO). Impaired loans, consisting of nonaccrual loans and accruing formally restructured loans, and loans 90 days past due and still accruing interest, constituted less than 0.1% of gross loans at June 30, 2020, and 0.1% at December 31, 2019. At June 30, 2020, the bank had reserves for credit losses totaling $13,889 with an allowance for loan losses of $11,544 and a reserve for credit losses on unfunded commitments of $2,345 related to the bank’s capital markets loan portfolio. The allowance for loan losses of $11,544 equated to less than 0.1% of total loans outstanding and 0.2% of capital market loans outstanding. The $2,345 reserve for losses on unfunded commitments predominantly included a general reserve for losses on unused loan commitments and for losses on letters of credit, representing management’s estimate of probable credit losses related to unfunded commitments. In addition, the reserve for credit losses included $1.0 million in qualitative general reserves due to uncertainty from the COVID-19 pandemic for certain sectors in the capital markets loan portfolio. Based on the structure and recourse of the association direct notes, analysis indicated that an allowance was not warranted. Therefore, the entire balance of the allowance and reserve for credit losses reflected reserves for risk identified in the bank’s participations purchased loan portfolio. The allowance for loan losses as a percentage of impaired loans was 60.06% as of June 30, 2020, as compared to 59.08% as of December 31, 2019. At this time, the impact of COVID-19 on the credit quality of the bank’s loan portfolio is unknown but closely being monitored. Liquidity and Funding Sources The bank’s primary source of liquidity comes from its ability to issue Systemwide Debt Securities, which are the general unsecured joint and several obligations of the System banks. The bank continually raises funds in the debt markets to support its mission, to repay maturing Systemwide Debt Securities, and to


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meet other obligations. As a secondary source of liquidity, the bank maintains an investment portfolio composed primarily of high-quality liquid securities. The securities provide a stable source of income for the bank, and their high quality ensures the portfolio can quickly be converted to cash should the need arise. Cash, federal funds sold, overnight investments and investment securities totaled $6.15 billion, or 22.54%, of total assets at June 30, 2020, compared to $5.72 billion, or 22.28%, at December 31, 2019. At June 30, 2020, the bank’s cash balance was $252.0 million, of which $236.7 million was held at the Federal Reserve Bank. The bank’s cash position increased in the current year to accommodate potential liquidity needs of borrowers as a result of the unknown impact of the COVID-19 virus. Each bank is required to maintain a minimum of 90 days of liquidity coverage on a continuous basis. The days of liquidity measurement refers to the number of days that maturing debt could be funded with eligible cash and investment securities. At June 30, 2020, the bank exceeded all applicable regulatory liquidity requirements and had 205 days of liquidity. Investments The bank’s investments are all considered available for sale, and include a liquidity portfolio and a portfolio of other investments. The liquidity portfolio had a fair value of $5.56 billion at June 30, 2020, and consisted primarily of federal agency collateralized mortgage-backed securities (MBS), corporate debt, agency-guaranteed debt, U.S. Treasury securities and asset-backed securities (ABS). The majority of the liquidity portfolio’s MBS includes Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) securities. The bank’s other investments had a fair value of $25.1 million at June 30, 2020, and consisted of Farmer Mac AMBS purchased from district associations. The Farmer Mac securities are backed by loans originated by the associations. Farmer Mac is a government-sponsored enterprise and is examined and regulated by the FCA. It provides a secondary market for agricultural and rural home mortgage loans that meet certain underwriting standards. Farmer Mac is authorized to provide loan guarantees and to be a direct pooler of agricultural mortgage loans. Farmer Mac is owned by both System and non-System investors, and its board of directors has both System and non-System representation. Farmer Mac is not liable for any debt or obligation of any System institution and no System institution other than Farmer Mac is liable for any debt or obligation of Farmer Mac. The following table summarizes the bank’s available-for-sale liquidity portfolio holdings:

Amortized Cost Fair Value Amortized Cost Fair Value

Agency-guaranteed debt 125,417$ 127,065$ 139,016$ 138,933$ Corporate debt 364,098 370,513 454,963 457,045 Federal agency collateralized

mortgage-backed securities: GNMA 2,117,490 2,167,405 2,165,953 2,170,985 FNMA and FHLMC 2,389,699 2,423,969 2,139,207 2,136,020 U.S. Treasury securities 325,335 325,698 200,088 200,114 Asset-backed securities 149,315 149,330 162,837 162,995 Total liquidity investments 5,471,354$ 5,563,980$ 5,262,064$ 5,266,092$

June 30, 2020 December 31, 2019


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The bank’s other investments portfolio consisted of Farmer Mac AMBS securities as follows:

Amortized Cost Fair Value Amortized Cost Fair Value

Agricultural mortgage-backed 25,374$ 25,110$ 29,867$ 29,051$ securities

June 30, 2020 December 31, 2019

FCA regulations also define eligible investments by specifying credit criteria and percentage of investment portfolio limit for each investment type. If an investment no longer meets the eligibility criteria, the investment becomes ineligible for inclusion in the liquidity portfolio. At June 30, 2020, the bank had no investments which were ineligible for liquidity purposes. Capital Resources At June 30, 2020, the bank’s capital totaled $1,937,740 and consisted of $700,000 of Class B noncumulative subordinated perpetual preferred stock, $334,245 of capital stock, $936,561 of retained earnings and $33,066 of accumulated other comprehensive loss. The capital balance reflected an increase of $93,557 from December 31, 2019, due primarily to net income of $108,638 and an $18,565 decrease in other comprehensive losses, offset by $28,225 in preferred stock dividends accrued, $4,404 in patronage distributions and $1,017 in net stock retired. The balance in accumulated other comprehensive loss of $33,066 resulted from $124,587 in unrealized losses on cash flow derivative instruments and $841 in accumulated amortization of other postretirement benefits, offset by unrealized gains on investments of $92,362. The decrease in interest rates for the first six months of 2020 increased the fair value of the liquidity investments but lowered the valuation of the cash flow derivative instruments. FCA regulations require the bank to maintain minimums for various regulatory capital ratios. New regulations became effective January 1, 2017, which replaced the previously required core surplus and total surplus ratios with common equity tier 1, tier 1 capital and total capital risk-based capital ratios. The new regulations also added tier 1 leverage and unallocated retained earnings and equivalents (UREE) ratios. The permanent capital ratio continues to remain in effect, with some modifications to align with the new regulations. As of June 30, 2020, the bank exceeded all regulatory capital requirements. The following table reflects the bank’s regulatory capital ratios as of:

June 30, 2020 December 31, 2019Common equity tier 1 ratio 9.18% 9.91% 7.00%Tier 1 capital ratio 14.94 16.01 8.50Total capital ratio 15.04 16.12 10.50Permanent capital ratio 14.95 16.03 7.00Tier 1 leverage ratio 6.60 7.26 5.00UREE leverage ratio 2.65 3.06 1.50

Total RegulatoryRequirements

Including CapitalConservation Buffers

RATING AGENCY ACTIONS

Fitch Ratings Actions On March 27, 2020, Fitch Ratings affirmed the bank’s long-term and short-term issuer default ratings (IDRs) at “AA-” and “F1+,” respectively, with a stable outlook. Based on their sovereign support assessment, Fitch has assigned a support rating of “1” and a support rating floor of “BBB+” for the bank’s noncumulative perpetual preferred stock.


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Moody’s Investors Service Rating Actions On June 18, 2020, Moody’s Investors Service affirmed the bank’s issuer rating at “Aa3,” its noncumulative preferred stock rating at “Baa1 (hyb),” and its “a1” baseline credit assessment (BCA), with a stable outlook.

LIBOR TRANSITION In July 2017, the United Kingdom’s Financial Conduct Authority, the authority regulating the London Inter-Bank Offered Rate (LIBOR) announced that it will stop persuading or compelling banks to submit rates for the calculation of the LIBOR after 2021. Since this announcement, central banks around the world, including the Federal Reserve, have commissioned working groups with the goal of finding suitable replacements for LIBOR. In the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee (ARRC) of the Federal Reserve Board and the Federal Reserve Bank of New York. Specifically, the ARRC has proposed the Secured Overnight Financing Rate (SOFR) as the recommended alternative to LIBOR. SOFR is based on a broad segment of the overnight Treasury repurchase market and is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The bank and its affiliated associations are currently evaluating the impacts of a potential phase-out of the LIBOR benchmark interest rate, including the possibility of using SOFR as an alternative to LIBOR. The transition from LIBOR to SOFR is expected to be complex and to include the development of term and credit adjustments to minimize, to the extent possible, discrepancies between LIBOR and SOFR. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the trading market for LIBOR-based instruments, including certain of the Farm Credit Systemwide debt securities, the bank’s borrowings, loans, investments, derivatives, and other bank assets and liabilities that are indexed to LIBOR. The bank established a LIBOR Workgroup, with cross-functional representation from the finance, operations, credit and legal departments. The LIBOR Workgroup is progressing in implementing its transition plan to an alternative benchmark rate.

The following is a summary of variable-rate financial instruments with LIBOR exposure at June 30, 2020:

Due inDue in Due in 2022 and

(in millions) 2020 2021 Thereafter TotalAssetsLoans 633$ 1,297$ 5,599$ 7,529$ Investment securities 55 69 1,449 1,573 Total assets 688$ 1,366$ 7,048$ 9,102$

Liabilites and shareholders' equityBonds and Notes, net 2,475$ 2,505$ -$ 4,980$ Preferred Stock - - 400 400 Total liabilities and shareholders' equity 2,475$ 2,505$ 400$ 5,380$

Due inDue in Due in 2022 and

(in millions) 2020 2021 Thereafter TotalDerivatives (notional amount) 150$ 50$ 970$ 1,170$

Note: Included in this table are preferred stock issuances that currently have fixed dividend rates but convert to LIBOR-indexed variable-rates in the future. The preferred stock is perpetual and may be redeemed in 2022 or thereafter. For additional information regarding preferred stock, see Note 11 in the 2019 Annual Information Statement


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REGULATORY MATTERS At June 30, 2020, there were no district associations under written agreements with the Farm Credit Administration. On February 13, 2020, the Farm Credit Administration board adopted a proposed rule that would amend parts 614, 615, 620 and 628 of FCA's regulations. FCA's objectives in proposing this rule are as follows:

• To provide technical corrections, amendments and clarification to certain provisions in FCA's tier 1/tier 2 capital framework for the Farm Credit System (System);

• To incorporate, with appropriate adjustments, the guidance provided in FCA bookletter Tier 1/Tier 2 Capital Framework Guidance (BL-068) (Word);

• To ensure that FCA’s capital requirements continue to be comparable to the standardized approach that the other federal banking regulatory agencies have adopted;

• To base the lending and leasing limit on tier 1/tier 2 capital instead of permanent capital, and to align the treatment of investments related to loan participations with their treatment in the tier 1/tier 2 capital framework; and

• To reduce regulatory burden where appropriate.

The Farm Credit Administration plans to publish the proposed rule this summer. On February 13, 2020, the Farm Credit Administration approved a final rule to amend accounting classifications for high-risk loans and the criteria for reinstating nonaccrual loans held by Farm Credit System banks and associations. This rulemaking finalizes the proposed rule that was published on April 3, 2019. The final rule reflects changes based on public comments received during the open comment period for the proposed rule. The final rule differs from the proposed rule in three respects:

• Adjusts three definitions in § 621.2 to more closely resemble the terminology of the Financial Institutions Examination Council;

• Removes consideration of charge-offs when reinstating a nonaccrual loan under § 621.9 and aligns the categories for high-risk loans in § 621.6 with changes to § 621.9 regarding charge-offs; and

• Limits regulatory text on troubled debt restructuring to GAAP requirements.

The Farm Credit Administration plans to publish the proposed rule this summer. On February 13, 2020, the Farm Credit Administration board approved a final rule to modify eligibility criteria that outside directors must meet to serve on the boards of System institutions. The final rule strengthens the independence of System institution boards by expanding the list of persons who are excluded from serving as outside directors. It finalizes a proposed rule that was published in the Federal Register on August 24, 2018. The final rule differs from the proposed rule in the following respects:

• Limits the application of the immediate family member criteria to only the outside director's institution, that institution's Funding Bank, or any affiliated organization in which that institution has an ownership interest;

• Changes the term “borrower” by inserting the word “current” in the definition to clarify that the eligibility criteria do not include former borrowers; and

• Changes the definition of “controlling interest” to increase the equity percentage from 5% to 10%.


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The Farm Credit Administration plans to publish the proposed rule this summer. On March 17, 2020, the Farm Credit Administration published a news release encouraging Farm Credit System institutions to work with System borrowers whose operations have been affected by COVID-19 and the measures taken to prevent its spread. System institutions can help alleviate stress for borrowers affected by COVID-19 in several ways:

• Extending the terms of loan repayments;

• Restructuring borrowers' debt obligations; and

• Easing some loan documentation or credit-extension terms for new loans to certain borrowers.

The agency also offered temporary relief from certain regulatory and reporting requirements to System institutions affected by the pandemic. On March 27, 2020, the FCA posted an Informational Memorandum providing guidance to Farm Credit System institutions about their role in ensuring critical infrastructure services and functions during the COVID-19 pandemic. On April 1, 2020, the FCA posted an informational memorandum providing guidance to Farm Credit System institutions on reporting troubled debt restructurings for customers affected by the national emergency declaration for the COVID-19 outbreak. On April 3, 2020, the FCA posted an informational memorandum providing guidance to Farm Credit System institutions on the Paycheck Protection Program for small businesses affected by the COVID-19 pandemic. This memorandum was superseded and replaced by an information memorandum on the same subject which the FCA posted on April 7, 2020, together with the FCA’s brief supplement explaining that the statutory borrower stock requirement does not apply to loans made under the Paycheck Protection Program. The April 7, 2020, informational memorandum was subsequently superseded and replaced by an updated informational memorandum which the FCA posted on June 18, 2020. On May 4, 2020, the FCA posted an informational memorandum providing information on the FCA’s existing COVID-19 guidance, as well as supplementary guidance covering the following topics:

• Working with borrowers

• Meeting capital and liquidity requirements

• Complying with financial reporting requirements

• Managing operational and other issues

Additionally, the FCA has posted six supplements to the informational memorandum providing guidance covering troubled debt restructurings (TDRs), annual meetings and election activities, flood insurance requirements, consumer financial protection, regulatory capital requirements for Paycheck Protection Program (PPP) loans and PPP loans pledged to the PPP Liquidity Facility, and electronic delivery of borrower rights notices. On June 25, 2020, the FCA, together with four other federal agencies, published a final rule finalizing changes to their swap margin rule to facilitate the implementation of prudent risk management strategies at banks and other entities with significant swap activities. Comments on the interim final rule will be accepted for 60 days following publication in the Federal Register.


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Report of Management The undersigned certify that we have reviewed the June 30, 2020, quarterly report of the Farm Credit Bank of Texas, that the report has been prepared in accordance with all applicable statutory or regulatory requirements, and that the information included herein is true, accurate and complete to the best of our knowledge and belief. James F. Dodson Larry R. Doyle Chairman of the Board Chief Executive Officer

Amie Pala Senior Vice President, Chief Financial Officer

August 6, 2020


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Controls and Procedures As of June 30, 2020, management of the Farm Credit Bank of Texas (bank) carried out an evaluation with the participation of the bank’s management, including the chief executive officer (CEO) and senior vice president, chief financial officer (CFO), of the effectiveness of the design and operation of the respective disclosure controls and procedures(1) with respect to this quarterly report. This evaluation is based on testing of the design and effectiveness of key internal controls, certifications and other information furnished by the CEO and CFO officer of the bank, as well as incremental procedures performed by the bank. Based upon and as of the date of the bank’s evaluation, the CEO and the CFO concluded that the disclosure controls and procedures are effective in alerting them on a timely basis of any material information relating to the bank that is required to be disclosed by the bank in the quarterly information statement it files or submits to the Farm Credit Administration. There have been no significant changes in the bank’s internal control over financial reporting(2) that occurred during the quarter ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, the bank’s internal control over financial reporting. Larry R. Doyle Amie Pala Chief Executive Officer Senior Vice President, Chief Financial Officer August 6, 2020

(1) For purposes of this discussion, ‘‘disclosure controls and procedures’’ are defined as controls and procedures of the bank that are designed to ensure that the financial information required to be disclosed by the bank in this quarterly information statement is recorded, processed, summarized and reported within the time periods specified under the rules and regulations of the Farm Credit Administration.

(2) For purposes of this discussion, ‘‘internal control over financial reporting’’ is defined as a process designed by, or under the supervision of, the bank’s principal executive officer and principal financial officer, or persons performing similar functions, and effected by the bank’s boards of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the bank’s financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the bank; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the bank’s financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the bank are being made only in accordance with authorizations of management and directors of the bank; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the bank’s assets that could have a material effect on the bank’s financial statements.


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CERTIFICATION I, Larry R. Doyle, chief executive officer of Farm Credit Bank of Texas (bank), a federally chartered instrumentality under the Farm Credit Act of 1971, as amended, certify that: 1. I have reviewed this quarterly report of the bank. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit

to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the bank as of, and for, the periods presented in this report.

4. The bank’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting for the bank and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to the bank is made known to us, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the bank’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the bank’s internal control over financial reporting that occurred during the bank’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the bank’s internal control over financial reporting.

5. The bank’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the bank’s auditors and the bank’s audit committee: a. all significant deficiencies and material weaknesses in the design or operation of internal control

over financial reporting which are reasonably likely to adversely affect the bank’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the bank’s internal control over financial reporting.

Larry R. Doyle Chief Executive Officer

August 6, 2020


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CERTIFICATION

I, Amie Pala, senior vice president, chief financial officer of Farm Credit Bank of Texas (bank), a federally chartered instrumentality under the Farm Credit Act of 1971, as amended, certify that: 1. I have reviewed this quarterly report of the bank. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit

to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the bank as of, and for, the periods presented in this report.

4. The bank’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting for the bank and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to the bank is made known to us, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the bank’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the bank’s internal control over financial reporting that occurred during the bank’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the bank’s internal control over financial reporting.

5. The bank’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the bank’s auditors and the bank’s audit committee: a. all significant deficiencies and material weaknesses in the design or operation of internal control

over financial reporting which are reasonably likely to adversely affect the bank’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the bank’s internal control over financial reporting.

Amie Pala Senior Vice President, Chief Financial Officer

August 6, 2020


The accompanying notes are an integral part of these financial statements.

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June 30,2020 December 31,

(dollars in thousands) (Unaudited) 2019

AssetsCash 251,986$ 47,606$ Federal funds sold and overnight investments 309,112 374,344 Investment securities 5,589,090 5,295,143 Loans 20,635,728 19,498,293

Less allowance for loan losses 11,544 11,487

Net loans 20,624,184 19,486,806

Accrued interest receivable 75,716 79,901 Premises and equipment, net 127,354 108,857 Other assets 304,866 271,159

Total assets 27,282,308$ 25,663,816$

Liabilities and Shareholdersʼ EquityLiabilities Bonds and notes, net 25,022,687$ 23,473,906$ Accrued interest payable 63,400 84,661 Reserve for credit losses 2,345 1,809 Preferred stock dividends payable 21,613 21,613 Patronage payable - 33,609 Other liabilities 234,523 204,035

Total liabilities 25,344,568$ 23,819,633$

Commitments and Contingencies (Note 5)

Shareholdersʼ EquityPreferred stock 700,000 700,000 Capital stock 334,245 335,262 Allocated retained earnings 52,452 52,451 Unallocated retained earnings 884,109 808,101 Accumulated other comprehensive loss (33,066) (51,631)

Total shareholdersʼ equity 1,937,740 1,844,183

Total liabilities and shareholdersʼ equity 27,282,308$ 25,663,816$

Balance Sheets



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(dollars in thousands) 2020 2019 2020 2019

Interest IncomeLoans 154,971$ 165,940$ 319,647$ 324,327$ Investment securities 23,622 36,908 53,177 75,118

Total interest income 178,593 202,848 372,824 399,445

Interest ExpenseBonds and notes 95,943 136,409 218,723 269,148

Net interest income 82,650 66,439 154,101 130,297

Provision for credit losses 881 157 586 417

Net interest income after provisionfor credit losses 81,769 66,282 153,515 129,880

Noninterest IncomePatronage income 2,506 2,745 5,237 6,610 Fees for services to associations 1,018 942 2,278 2,424 Fees for loan-related services 3,740 1,667 6,481 3,277 Refunds from Farm Credit System Insurance Corporation - - 2,380 2,507 Loss on loans held under fair value option - (34) - (40) Gain on sale of investments - 7,516 - 7,516 Other (loss) income, net (192) 239 723 89

Total noninterest income 7,072 13,075 17,099 22,383

Noninterest ExpenseSalaries and employee benefits 10,698 10,349 22,532 20,556 Occupancy and equipment 7,461 5,480 14,710 11,504 FCSIC premiums 1,940 1,791 3,679 3,759 Other components of net periodic postretirement

benefit cost 83 109 168 219 Other operating expenses 10,484 11,074 20,887 21,050

Total noninterest expense 30,666 28,803 61,976 57,088

Net Income 58,175 50,554 108,638 95,175

Other comprehensive income (loss)Change in unrealized gain on investments 35,187 46,840 89,150 75,337 Change in postretirement benefit plans (21) (20) (40) (39) Change in cash flow derivative instruments (4,003) (27,340) (70,545) (45,339)

Total other comprehensive income 31,163 19,480 18,565 29,959

Comprehensive Income 89,338$ 70,034$ 127,203$ 125,134$

June 30, June 30,Quarter Ended Six Months Ended

Statements of Comprehensive Income(unaudited)



— 20 —

AccumulatedOther Total

Preferred Capital Comprehensive Shareholdersʼ(dollars in thousands) Stock Stock Allocated Unallocated Loss Equity

Balance at December 31, 2018 700,000$ 316,463$ 45,685$ 796,478$ (81,693)$ 1,776,933$ Net income - - - 95,175 - 95,175 Other comprehensive income - - - - 29,959 29,959 Capital stock and allocated retained earnings issued - 770 - - - 770 Capital stock and allocated retained earnings retired - (192) - - - (192) Issuance costs on preferred stock - - - (3) - (3) Preferred stock dividends - - - (28,225) - (28,225) Patronage distributions Cash - - - (4,794) - (4,794)

Shareholders' equity - - (12) 12 - - Balance at June 30, 2019 700,000$ 317,041$ 45,673$ 858,643$ (51,734)$ 1,869,623$

Balance at December 31, 2019 700,000$ 335,262$ 52,451$ 808,101$ (51,631)$ 1,844,183$ Net income - - - 108,638 - 108,638 Other comprehensive income - - - - 18,565 18,565 Capital stock and allocated retained earnings issued - 813 - - - 813 Capital stock and allocated retained earnings retired - (1,830) - - - (1,830) Preferred stock dividends - - - (28,225) - (28,225) Patronage distributions Cash - - - (4,404) - (4,404)

Shareholdersʼ equity - - 1 (1) - - Balance at June 30, 2020 700,000$ 334,245$ 52,452$ 884,109$ (33,066)$ 1,937,740$

Statements of Changes in Shareholdersʼ Equity(unaudited)

Retained Earnings



— 21 —

(dollars in thousands) 2020 2019Cash Flows From Operating ActivitiesNet income 108,638$ 95,175$ Reconciliation of net income to net cash provided by operating activities

Provision for credit losses 586 417 Depreciation and amortization on premises and equipment 5,482 4,342 Discount accretion on loans 531 189 Amortization and accretion on debt instruments 29,554 22,013 Premium amortization on investments 4,022 349 Decrease in fair value of loans held under fair value option - 40 Gain on sale of investment securities - (7,516) (Gain) loss on sale of loans (680) 1 Allocated equity patronage from System bank (2,745) (7,231) Loss on other earning assets - 241 Gain on sales of premises and equipment (18) (45) Decrease (increase) in accrued interest receivable 4,185 (5,681) Decrease in other assets, net 18,701 22,753 (Decrease) increase in accrued interest payable (21,262) 5,083 (Decrease) increase in other liabilities, net (12,859) (14,014)

Net cash provided by operating activities 134,135 116,116

Cash Flows From Investing ActivitiesNet decrease in federal funds sold and repurchase agreements 65,232 134,956 Investment securities

Purchases (1,202,492) (704,746) Proceeds from maturities, calls and prepayments 993,673 716,129 Proceeds from sales - 272,762

Increase in loans, net (1,196,754) (917,645) Proceeds from sales of loans 33,749 5,939 Proceeds from sales of premises and equipment 97 92 Expenditures for premises and equipment (24,058) (21,456) Distributions in excess of cumulative equity earnings - 86 Investments/distributions in other earning assets (511) (2,846)

Net cash used in investing activities (1,331,064) (516,729)

Cash Flows From Financing ActivitiesBonds and notes issued 24,660,592 10,563,109 Bonds and notes retired (23,141,365) (10,190,070) Increase in cash collateral posted with a counterparty (50,664) (17,287) Issuance costs on preferred stock - (3) Capital stock issued 813 770 Capital stock retired and allocated retained earnings distributed (1,830) (192) Cash dividends on preferred stock (28,225) (28,225) Cash patronage distributions paid (38,012) (34,355)

Net cash provided by financing activities 1,401,309 293,747 Net increase (decrease) in cash 204,380 (106,866) Cash at beginning of year 47,606 129,478 Cash at End of Quarter 251,986$ 22,612$

Supplemental Schedule of Noncash Investing and Financing ActivitiesNet increase in unrealized gains on investment securities 89,150$ 75,338$ Preferred stock dividend payable 21,613 21,613 Patronage distribution stock adjustment 1 (12) Right-of-use asset recognized in exchange for operating lease liabilities 432 10,939

Supplemental Schedule of Noncash Increase in Bonds and Notes Related to Hedging Activities 740$ -$

Supplemental InformationInterest paid 240,060$ 264,065$

Statements of Cash Flows(unaudited)

Six Months Ended June 30,


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Notes to Financial Statements

Unaudited (dollar amounts in thousands, except per share amounts and as otherwise noted) NOTE 1 — ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited financial statements include the accounts of the Farm Credit Bank of Texas (bank). A description of the organization and operations of the bank, the significant accounting policies followed and the financial condition and results of operations of the bank as of and for the year ended December 31, 2019, are contained in the 2019 Annual Report to shareholders (Annual Report). These unaudited second quarter 2020 financial statements should be read in conjunction with the Annual Report. In the opinion of management, the unaudited financial information is complete and reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of results for the interim periods. The preparation of the financial statements in accordance with generally accepted accounting principles in the U.S. (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2020. Descriptions of the significant accounting policies are included in the Annual Report. In the opinion of management, these policies and the presentation of the interim financial condition and results of operations conform with GAAP and prevailing practices within the banking industry. The accompanying unaudited financial statements have been prepared in accordance with GAAP for interim financial information. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements and should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2019, as contained in the Annual Report. The bank and its affiliated associations (Texas District) are part of the federally chartered Farm Credit System (System). The bank provides funding to district associations, which, in turn, provide credit to their borrower-members. At June 30, 2020, the bank provided financing to 14 district associations and certain other financing institutions. In March 2020, the Financial Accounting Standards Board (FASB) issued guidance entitled “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. The guidance simplifies the accounting evaluation of contract modifications that replace a reference rate affected by reference rate reform and contemporaneous modifications of other contracts related to the replacement of the reference rate. With respect to hedge accounting, the guidance allows amendment of formal designation and documentation of hedging relationships in certain circumstances as a result of reference rate reform and provides additional expedients for different types of hedges, if certain criteria are met. The optional amendments are effective as of March 12, 2020, through December 31, 2022. The bank is evaluating the impact of adoption on its financial condition and its results of operations. In August 2018, the FASB issued guidance entitled “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Cost.” The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by this guidance. This guidance became effective for interim and annual periods beginning after December


— 23 —

15, 2019. The guidance also requires an entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. It further specifies where to present expense and payments in the financial statements. The guidance is to be applied on a retrospective or prospective basis to all implementation costs incurred after the date of adoption. The adoption of this guidance did not materially impact the bank’s financial condition or its results of operations. In August 2018, the FASB issued guidance entitled “Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans.” The guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance becomes effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The guidance is to be applied on a retrospective basis for all periods. The adoption of this guidance will not impact the bank’s financial condition or its results of operations, but will impact the employee benefit plan disclosures. In August 2018, the FASB issued guidance entitled “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.” The guidance modifies the requirements on fair value measurements by removing, modifying or adding to the disclosures. This guidance became effective for interim and annual periods beginning after December 15, 2019. Early adoption was permitted and an entity was permitted to early adopt any removal or modified disclosures and delay adoption of the additional disclosures until their effective date. The bank early adopted the removal and modified disclosures during the fourth quarter of 2019. The adoption of this guidance did not impact the bank’s financial condition or its results of operations, but did impact the fair value measurement disclosures. In June 2016, the FASB issued guidance entitled “Measurement of Credit Losses on Financial Instruments.” The guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to develop credit loss estimates. Credit losses relating to available-for-sale securities would also be recorded through an allowance for credit losses. For public business entities that are not U.S. Securities and Exchange Commission filers, this guidance was to become effective for interim and annual periods beginning after December 15, 2020, with early application permitted. In November 2019, the FASB issued an update that amends the mandatory effective date for this guidance for certain institutions. The change resulted from a change in the effective date philosophy that extends and simplifies the adoption by staggering the dates between large public entities and other entities. As a result of the change, the new credit loss standard, for those institutions qualifying for the delay, becomes effective for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The bank qualifies for the delay in the adoption date and continues to evaluate the impact of adoption on the bank’s financial condition and its results of operations. NOTE 2 — INVESTMENT SECURITIES

Available-for-Sale Investments The bank’s available-for-sale investments include a liquidity portfolio and a portfolio of other investments. The liquidity portfolio consists primarily of agency-guaranteed debt instruments, mortgage-backed investments (MBS), U.S. Treasury securities, asset-backed investments (ABS) and corporate debt. The majority of the liquidity portfolio’s MBS were federal agency-guaranteed collateralized MBS, including Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) securities. The bank’s other investments portfolio consists of Federal Agricultural Mortgage Corporation (Farmer Mac) guaranteed agricultural mortgage-backed securities (AMBS) purchased from district associations.


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A summary of the amortized cost and fair value of the available-for-sale investment securities at June 30, 2020, and December 31, 2019, is included in the following tables.

Investments in the available-for-sale liquidity portfolio at June 30, 2020:

Gross Gross WeightedAmortized Unrealized Unrealized Fair Average

Cost Gains Losses Value Yield

Agency-guaranteed debt 125,417$ 2,283$ (635)$ 127,065$ 1.74 %Corporate debt 364,098 6,607 (192) 370,513 1.85 Federal agency collateralized

mortgage-backed securities: GNMA 2,117,490 51,174 (1,259) 2,167,405 2.03 FNMA and FHLMC 2,389,699 35,804 (1,534) 2,423,969 1.35 U.S. Treasury securities 325,335 385 (22) 325,698 0.81 Asset-backed securities 149,315 451 (436) 149,330 0.91 Total liquidity investments 5,471,354$ 96,704$ (4,078)$ 5,563,980$ 1.61 %

Investments in the available-for-sale other investments portfolio at June 30, 2020:



Agricultural mortgage-backed securities 25,374$ -$ (264)$ 25,110$ 4.45 %

Investments in the available-for-sale liquidity portfolio at December 31, 2019:



Agency-guaranteed debt 139,016$ 480$ (563)$ 138,933$ 2.06 %Corporate debt 454,963 2,122 (40) 457,045 2.34 Federal agency collateralized

mortgage-backed securities: GNMA 2,165,953 14,236 (9,204) 2,170,985 2.40 FNMA and FHLMC 2,139,207 5,898 (9,085) 2,136,020 2.12 U.S. Treasury securities 200,088 43 (17) 200,114 1.79 Asset-backed securities 162,837 367 (209) 162,995 2.29 Total liquidity investments 5,262,064$ 23,146$ (19,118)$ 5,266,092$ 2.25 %

Investments in the available-for-sale other investments portfolio at December 31, 2019:



Agricultural mortgage-backed securities 29,867$ -$ (816)$ 29,051$ 4.96 %


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The following tables summarize the contractual maturity, fair value, amortized cost and weighted average yield of available-for-sale liquidity investments at June 30, 2020.

Investments in the available-for-sale liquidity portfolio:

Due in Due After One Due After Five DueOne Year Year Through Years Through AfterOr Less Five Years 10 years 10 years Total

Agency-guaranteed debt -$ 95,009$ 32,056$ -$ 127,065$ Corporate debt 154,193 216,320 - - 370,513Federal agency collateralized

mortgage-backed securities: GNMA - - 89,064 2,078,341 2,167,405 FNMA and FHLMC 245 121,204 638,054 1,664,466 2,423,969

U.S. Treasury securities 325,698 - - - 325,698 Asset-backed securities 4,197 18,486 50,229 76,418 149,330 Total fair value 484,333$ 451,019$ 809,403$ 3,819,225$ 5,563,980$

Total amortized cost 483,795$ 443,463$ 792,796$ 3,751,300$ 5,471,354$ Weighted average yield 1.09% 1.54% 1.65% 1.68% 1.61%

Investments in the available-for-sale other investments portfolio:

Due After One Due After Five Year Through Years Through

Five Years 10 Years TotalFair value of agricultural

mortgage-backed securities 7,272$ 17,838$ 25,110$

Total amortized cost 7,219$ 18,155$ 25,374$ Weighted average yield 4.33% 4.49% 4.45%

Other-Than-Temporarily Impaired Investments Evaluation The following table shows the fair value and gross unrealized losses for investments in a loss position aggregated by investment category, and the length of time the securities have been in a continuous unrealized loss position. The continuous loss position is based on the date the impairment occurred.

Fair Unrealized Fair Unrealized Fair UnrealizedValue Losses Value Losses Value Losses

Agency-guaranteed debt 21,048$ (438)$ 10,876$ (197)$ 31,924$ (635)$ Corporate debt 34,808 (192) - - 34,808 (192) Federal agency collateralized

mortgage-backed securities: GNMA 70,056 (113) 260,485 (1,146) 330,541 (1,259) FNMA and FHLMC 196,324 (424) 316,774 (1,110) 513,098 (1,534) U.S. Treasury securities 150,234 (22) - - 150,234 (22) Asset-backed securities 97,941 (436) - - 97,941 (436) Total 570,411$ (1,625)$ 588,135$ (2,453)$ 1,158,546$ (4,078)$

TotalLess Than Greater Than12 Months 12 Months


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The bank evaluates investment securities for other-than-temporary impairment (OTTI) on a quarterly basis. Impairment is considered to be other than temporary if the bank (i) intends to sell the security, (ii) is more likely than not to be required to sell the security before recovering its costs or (iii) does not expect to recover the security’s entire amortized cost basis (even if it does not intend to sell). For the six months ended June 30, 2020, and 2019, the bank did not recognize any OTTI credit losses and no securities were identified as OTTI at June 30, 2020, and 2019. NOTE 3 — LOANS AND RESERVES FOR CREDIT LOSSES

Loans, including direct notes to district associations and other financing institutions (OFIs), participations purchased and other bank-owned loans, comprised the following categories at:

Direct notes receivable from district associations and OFIs 13,851,024$ 12,976,399$ Participations purchased 6,784,704 6,521,665 Other bank-owned loans - 229 Total loans 20,635,728$ 19,498,293$

June 30, 2020 December 31, 2019

A summary of the bank’s loans by type follows:

Direct notes receivable from district associations 13,814,874$ 12,935,229$ Real estate mortgage 806,980 742,630 Production and intermediate term 733,081 744,869 Agribusiness

Loans to cooperatives 435,018 354,303 Processing and marketing 2,813,090 2,956,140 Farm-related business 157,421 70,383

Communications 588,674 455,696 Energy (rural utilities) 1,095,599 1,057,739 Water and waste disposal 138,997 111,830 Rural residential real estate 2,065 - Lease receivables 11,432 12,109 Loans to OFIs 36,150 41,170 Mission-related 2,347 16,195 Total loans 20,635,728$ 19,498,293$

June 30, 2020 December 31, 2019

The bank’s capital markets loan portfolio, also referred to participations purchased loan portfolio, predominantly includes participations, syndications and purchased whole loans, along with other financing structures within our lending authorities. In addition to purchasing loans from our district associations, which may exceed their hold limits, the bank seeks the purchase of participations and syndications originated outside of the district’s territory by other System institutions, commercial banks and other lenders. These loans may be held as earning assets of the bank or sub-participated to the associations or other System entities.

The bank purchases or sells participation interests with other parties in order to diversify risk, manage loan volume and comply with Farm Credit Administration regulations.


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The following table presents information regarding the balances of direct notes receivable from district associations and loan participations purchased and sold, excluding syndications, at June 30, 2020:

Participations Participations Participations Participations Participations ParticipationsPurchased Sold Purchased Sold Purchased Sold

Real estate mortgage 1,062,872$ 361,764$ 47,210$ -$ 1,110,082$ 361,764$ Production and intermediate term 1,528,705 873,655 27,225 979 1,555,930 874,634 Agribusiness 2,386,851 1,076,152 - - 2,386,851 1,076,152 Communications 826,360 237,190 - - 826,360 237,190 Energy (rural utilities) 1,235,964 140,417 - - 1,235,964 140,417 Water and waste disposal 180,831 41,668 - - 180,831 41,668 Rural residential real estate 6,160 - - - 6,160 - Lease receivables 13,079 1,658 - - 13,079 1,658 Mission-related 2,337 - - - 2,337 - Direct note receivable from district associations - 3,850,000 - - - 3,850,000

Total 7,243,159$ 6,582,504$ 74,435$ 979$ 7,317,594$ 6,583,483$

Non-Farm Credit Institutions TotalOther Farm Credit Institutions

The bank has purchased loan participations and Federal Agricultural Mortgage Corporation (Farmer Mac) guaranteed agricultural mortgage-backed securities (AMBS) from associations in Capitalized Participation Pool (CPP) transactions. As a condition of the transactions, the bank redeemed common stock in the amount of 2.0% of the par value of the loans purchased, and the associations bought bank stock equal to 8.0% of the purchased loans’ par value and 1.6% of the AMBS’s par value. During the first six months of 2020, the bank purchased $10.2 million in loan participations from an association, which resulted in a net stock issuance of $610. CPP loans held at June 30, 2020, totaled $119.5 million and were included in loans on the balance sheet. The balance of the AMBS CPP was $25.0 million at June 30, 2020, and was included in investment securities on the balance sheet. The bank may also purchase loans from district associations in Non-Capitalized Participation Pool (NCPP) transactions. As a condition of the transactions, the bank redeems common stock in the amount of 2.0% of the par value of the loans purchased. There were no NCPP loan purchases for the six months ended June 30, 2020. The NCPP loans balance was $132.7 million at June 30, 2020, and was included in loans on the balance sheet. The bank held loans under the fair value option that matured during the second quarter of 2019 and thus had no balance to reflect at June 30, 2020, or December 31, 2019, respectively.


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Nonperforming assets (including related accrued interest) and related credit quality statistics are as follows:

June 30, 2020 December 31, 2019Nonaccrual loans:Energy & water/waste disposal 8,758$ 9,207$ Agribusiness 5,870 6,866 Real estate mortgage 1,584 692 Total nonaccrual loans 16,212 16,765

Accruing loans past due 90 days or more:Real estate mortgage 636 229 Total accruing loans past due 90 days or more: 636 229

Accruing restructured loans:Mission-related 2,372 2,450 Total accruing restructured loans 2,372 2,450

Total nonperforming loans 19,220 19,444 Total nonperforming assets 19,220$ 19,444$

One credit quality indicator utilized by the bank is the Farm Credit Administration Uniform Loan Classification System that categorizes loans into five categories. The categories are defined as follows:

• Acceptable – assets expected to be fully collectible and represent the highest quality;

• Other assets especially mentioned (OAEM) – assets are currently collectible but exhibit some potential weakness;

• Substandard – assets exhibit some serious weakness in repayment capacity, equity and/or collateral pledged on the loan;

• Doubtful – assets exhibit similar weaknesses to substandard assets; however, doubtful assets have additional weaknesses in existing factors, conditions and values that make collection in full highly questionable; and

• Loss – assets are considered uncollectible.


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The following table presents loans and related accrued interest classified under the Uniform Loan Classification System as a percentage of total loans and related accrued interest receivable by loan type as of:

June 30, 2020 December 31, 2019Real estate mortgage:

Acceptable 99.7 % 98.4 %OAEM - 0.6 Substandard/Doubtful 0.3 1.0

100.0 % 100.0 %Production and intermediate term:

Acceptable 89.1 % 95.0 %OAEM 9.5 0.8 Substandard/Doubtful 1.4 4.2

100.0 % 100.0 %Agribusiness:


100.0 % 100.0 %Energy & water/waste disposal:

Acceptable 97.4 % 97.0 %OAEM - - Substandard/Doubtful 2.6 3.0

100.0 % 100.0 %Communications:

Acceptable 95.9 % 100.0 %OAEM 4.1 - Substandard/Doubtful - -

100.0 % 100.0 %Direct notes to associations:

Acceptable 100.0 % 91.9 %OAEM - 8.1 Substandard/Doubtful - -

100.0 % 100.0 %Loans to other financing institutions:

Acceptable 100.0 % 100.0 %OAEM - - Substandard/Doubtful - -

100.0 % 100.0 %Mission-related:


100.0 % 100.0 %Lease receivables:


100.0 % 100.0 %Rural residential real estate:

Acceptable 100.0 % - %OAEM - - Substandard/Doubtful - -

100.0 % - %Total Loans:


100.0 % 100.0 %


— 30 —

The following tables provide an age analysis for the entire loan portfolio, including accrued interest and nonaccrual loans as of:

June 30, 2020 Not Past Due Recorded90 Days or Less Than Investment

30-89 Days or More Total 30 Days Total > 90 DaysPast Due Past Due Past Due Past Due Loans and Accruing

Real estate mortgage -$ 2,220$ 2,220$ 812,975$ 815,195$ 636$ Production and intermediate term - - - 735,902 735,902 - Agribusiness - - - 3,421,642 3,421,642 - Energy & water/waste disposal - - - 1,240,712 1,240,712 - Communications - - - 588,829 588,829 - Lease receivables - - - 11,471 11,471 - Direct notes to associations - - - 13,845,659 13,845,659 - Loans to OFIs - - - 36,213 36,213 - Mission-related - - - 2,372 2,372 - Rural residential real estate - - - 2,072 2,072 - Total -$ 2,220$ 2,220$ 20,697,847$ 20,700,067$ 636$

December 31, 2019 Not Past Due Recorded90 Days or Less Than Investment

30-89 Days or More Total 30 Days Total > 90 DaysPast Due Past Due Past Due Past Due Loans and Accruing

Real estate mortgage 2,963$ 921$ 3,884$ 745,107$ 748,991$ 229$ Production and intermediate term - - - 748,771 748,771 - Agribusiness - - - 3,398,526 3,398,526 - Energy & water/waste disposal - - - 1,174,853 1,174,853 - Communications - - - 455,974 455,974 - Lease receivables - - - 12,150 12,150 - Direct notes to associations - - - 12,969,086 12,969,086 - Loans to OFIs - - - 41,270 41,270 - Mission-related - - - 16,439 16,439 - Total 2,963$ 921$ 3,884$ 19,562,176$ 19,566,060$ 229$

Additional impaired loan information is as follows:

Impaired loans with a related Recorded Unpaid Principal Related Recorded Unpaid Principal Related allowance for credit losses: Investment Balance Allowance Investment Balance Allowance

Energy & water/waste disposal 8,758$ 8,827$ 2,566$ 9,207$ 9,231$ 2,579$ Agribusiness 5,795 5,909 1,199 6,219 6,332 2,006 Mission-related 164 164 53 168 168 52 Total 14,717$ 14,900$ 3,818$ 15,594$ 15,731$ 4,637$

Impaired loans with no relatedallowance for credit losses:

Real estate mortgage 2,220$ 2,220$ -$ 921$ 921$ -$ Agribusiness 75 75 - 647 647 - Processing and marketing - 1,192 - - 1,192 - Energy & water/waste disposal - 7,720 - - 7,623 - Mission-related 2,208 2,208 - 2,282 2,282 - Total 4,503$ 13,415$ -$ 3,850$ 12,665$ -$

Total impaired loans:Real estate mortgage 2,220$ 2,220$ -$ 921$ 921$ -$ Agribusiness 5,870 5,984 1,199 6,866 6,979 2,006 Processing and marketing - 1,192 - - 1,192 - Energy & water/waste disposal 8,758 16,547 2,566 9,207 16,854 2,579 Mission-related 2,372 2,372 53 2,450 2,450 52 Total 19,220$ 28,315$ 3,818$ 19,444$ 28,396$ 4,637$

At June 30, 2020 At December 31, 2019


— 31 —

Average Interest Average Interest Average Interest Average InterestImpaired loans with a related Impaired Income Impaired Income Impaired Income Impaired Income

allowance for credit losses: Loans Recognized Loans Recognized Loans Recognized Loans RecognizedEnergy & water/waste disposal 8,829$ -$ 9,842$ -$ 8,751$ -$ 9,951$ -$ Agribusiness 5,818 - 7,354 - 5,925 - 7,341 - Mission-related 163 6 168 4 165 7 169 7 Total 14,810$ 6$ 17,364$ 4$ 14,841$ 7$ 17,461$ 7$

Impaired loans with no relatedallowance for credit losses:

Real estate mortgage 2,158$ 16$ 830$ -$ 1,483$ 16$ 865$ -$ Energy & water/waste disposal 865 - 175 - 504 - 93 - Agribusiness 75 - 115 - 233 - 184 - Mission-related 2,212 62 2,291 35 2,235 68 2,313 71 Total 5,310$ 78$ 3,411$ 35$ 4,455$ 84$ 3,455$ 71$

Total impaired loans:Real estate mortgage 2,158$ 16$ 830$ -$ 1,483$ 16$ 865$ -$ Energy & water/waste disposal 9,694 - 10,017 - 9,255 - 10,044 - Agribusiness 5,893 - 7,469 - 6,158 - 7,525 - Mission-related 2,375 68 2,459 39 2,400 75 2,482 78 Total 20,120$ 84$ 20,775$ 39$ 19,296$ 91$ 20,916$ 78$

For the Three Months Ended For the Six Months EndedJune 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

At June 30, 2020, impaired loans of $14.7 million had a related specific allowance of $3.8 million, while the remaining $4.5 million of impaired loans had no related specific allowance as a result of adequate collateralization. The average recorded investment in impaired loans for the three months ended June 30, 2020, was $20.1 million. The bank recognized interest income of $84 on impaired loans during the three months ended June 30, 2020. The average recorded investment in impaired loans for the six months ended June 30, 2020, was $19.3 million. The bank recognized interest income of $91 on impaired loans during the six months ended June 30, 2020.


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A summary of changes in the allowance and reserves for credit losses and period end recorded investment (including accrued interest) in loans follows:

Real Estate

Mortgage

Production and

Intermediate Term Agribusiness Communications

Energy and Water/Waste

DisposalLease

Receivables

Rural Residential Real Estate

Direct Notes to

AssociationsLoans to

OFIsMission- Related Total

Allowance for Credit Losses:Balance at March 31, 2020 183$ 974$ 6,231$ 300$ 3,396$ 38$ -$ -$ -$ 54$ 11,176$ Charge-offs - - - - - - - - - - - Recoveries 6 - - - - - - - - - 6 Provision for credit losses (loan loss reversal) 70 515 47 143 85 22 - - - (1) 881 Other * 2 (156) (321) (4) (40) - - - - - (519) Balance at June 30, 2020 261$ 1,333$ 5,957$ 439$ 3,441$ 60$ -$ -$ -$ 53$ 11,544$

Balance at December 31, 2019 166$ 1,085$ 6,097$ 345$ 3,699$ 40$ -$ -$ -$ 55$ 11,487$ Charge-offs - - - - - - - - - - - Recoveries 6 - - - - - - - - - 6 Provision for credit losses (loan loss reversal) 88 466 118 103 (207) 20 - - - (2) 586 Other * 1 (218) (258) (9) (51) - - - - - (535) Balance at June 30, 2020 261$ 1,333$ 5,957$ 439$ 3,441$ 60$ -$ -$ -$ 53$ 11,544$

Individually evaluated for impairment -$ -$ 1,199$ -$ 2,566$ -$ -$ -$ -$ 53$ 3,818$ Collectively evaluated for impairment 261 1,333 4,758 439 875 60 - - - - 7,726 Loans acquired with deteriorated credit quality - - - - - - - - - - - Balance at June 30, 2020 261$ 1,333$ 5,957$ 439$ 3,441$ 60$ -$ -$ -$ 53$ 11,544$

Balance at March 31, 2019 119$ 832$ 6,538$ 315$ 4,313$ 32$ -$ -$ -$ 54$ 12,203$ Charge-offs - - - - - - - - - - - Recoveries 6 - - - - - - - - - 6 Provision for credit losses (loan loss reversal) (5) (37) 229 (31) 7 (5) - - - (1) 157 Other * (1) (42) (104) (2) (56) - - - - - (205) Balance at June 30, 2019 119$ 753$ 6,663$ 282$ 4,264$ 27$ -$ -$ -$ 53$ 12,161$

Balance at December 31, 2018 120$ 799$ 5,975$ 364$ 4,635$ 29$ -$ -$ -$ 52$ 11,974 Charge-offs - - - - - - - - - - - Recoveries 6 - - - - - - - - - 6 Provision for credit losses (loan loss reversal) (7) (6) 801 (73) (297) (2) - - - 1 417 Other * - (40) (113) (9) (74) - - - - - (236) Balance at June 30, 2019 119$ 753$ 6,663$ 282$ 4,264$ 27$ -$ -$ -$ 53$ 12,161$

Individually evaluated for impairment -$ -$ 3,484$ -$ 2,668$ -$ -$ -$ -$ 50$ 6,202$ Collectively evaluated for impairment 119 753 3,179 282 1,596 27 - - - 3 5,959 Loans acquired with deteriorated credit quality - - - - - - - - - - - Balance at June 30, 2019 119$ 753$ 6,663$ 282$ 4,264$ 27$ -$ -$ -$ 53$ 12,161$

Recorded Investmentsin loans outstanding:

Ending balance at June 30, 2020 815,195$ 735,902$ 3,421,642$ 588,829$ 1,240,712$ 11,471$ 2,072$ 13,845,659$ 36,213$ 2,372$ 20,700,067$

Individually evaluated for impairment 895$ -$ 5,870$ -$ 8,758$ -$ -$ 13,845,659$ -$ 2,372$ 13,863,554$ Collectively evaluated for impairment 814,300$ 735,902$ 3,415,772$ 588,829$ 1,231,954$ 11,471$ 2,072$ -$ 36,213$ -$ 6,836,513$ Loans acquired with deteriorated credit quality -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Ending Balance at June 30, 2019 710,134$ 688,087$ 3,294,998$ 457,953$ 1,284,886$ 12,813$ -$ 12,510,107$ 41,009$ 16,442$ 19,016,429$

Individually evaluated for impairment 825$ -$ 7,677$ -$ 10,477$ -$ -$ 12,510,107$ -$ 2,453$ 12,531,539$ Collectively evaluated for impairment 709,309$ 688,087$ 3,287,321$ 457,953$ 1,274,409$ 12,813$ -$ -$ 41,009$ 13,989$ 6,484,890$ Loans acquired with deteriorated credit quality -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

* Reserve for losses and unfunded commitments on letters of credit recorded in other liabilities

A restructuring of a debt constitutes a troubled debt restructuring (TDR) if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. TDRs are undertaken in order to improve the likelihood of recovery on the loan and may include, but are not limited to, forgiveness of principal or interest, interest rate reductions that are lower than the current market rate for new debt with similar risk, or significant term or payment extensions. These loans are included as impaired loans in the impaired loans table above.

As of June 30, 2020, the total recorded investment in TDRs was $9.0 million, including $6.6 million classified as nonaccrual and $2.4 million classified as accrual, with specific allowance for loan losses of $1.3 million. Additional commitments to lend to borrowers whose loans have been modified in TDRs were $2.3 million at June 30, 2020, and $1.6 million at December 31, 2019.


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The following table provides information on outstanding loans restructured in TDRs at period end:

June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019

Agribusiness 5,983$ 6,979$ 5,983$ 6,979$ Real estate mortgage 666 692 666 692 Mission-related 2,372 2,450 - - Total 9,021$ 10,121$ 6,649$ 7,671$

Total Loans Modified as TDRs TDRs in Nonaccrual Status

There were no new loans designated as TDRs during the three or six months ended June 30, 2020, or June 30, 2019. During both periods there were no payment defaults on loans that were restructured during the previous 12 months. A payment default is defined as a payment that is 30 days past due after the date the loan was restructured. NOTE 4 — LEASES

The bank evaluates arrangements at inception to determine if it meets the criteria for a lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet with lease expense recognized on a straight-line basis over the lease term. Operating leases are included in other assets for right-of-use (ROU) assets and other liabilities for lease liabilities on the balance sheet. ROU assets represent the bank’s right to use an underlying asset for the lease term and lease liabilities represent the bank’s obligation to make lease payments arising from the lease. Operating ROU assets and liabilities are recognized based on the present value of the lease payments over the lease term. The bank’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the bank will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The bank maintains a lease for its headquarters facility in Austin, Texas. The original lease was effective from September 2003 through August 2013. The bank has since entered into two lease amendments which extended the lease through December 2034. This lease is for approximately 111,500 square feet of office space ranging from $18 per square foot to $38 per square foot during its term. Lease expenses for the facility include certain operating expenses passed through from the landlord and were $1,215 and $1,010 for the three months ended June 30, 2020, and 2019, respectively. Lease expenses for the facility were $2,522 and $2,032 for the six months ended June 30, 2020, and 2019, respectively. The bank entered a lease for copiers in September 2016 and a lease for postage machines in June 2017. The copiers lease had an original term ending March 2020 but was replaced by a new lease of new copiers and is effective January 2020 through March 2023. The postage machines lease had an original term ending August 2020 but was renewed and is effective July 2020 through September 2023. Lease expenses for the copiers and postage machines were $75 and $61 for the three months ended June 30, 2020, and 2019, respectively. Lease expenses for the copiers and postage machines were $126 and $136 for the six months ended June 30, 2020, and 2019, respectively. The components of lease expense were as follows:

Classification on Statementsof Comprehensive Income 2020 2019 2020 2019

Operating lease cost Occupancy and equipment 1,290$ 1,071$ 2,648$ 2,168$

Three Months EndedJune 30,



— 34 —

Other information related to leases was as follows:

2020 2019 2020 2019Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases 671$ 670$ 1,341$ 1,340$ ROU assets obtained in exchange for new lease obligations:

Operating leases -$ -$ 432$ -$

Three Months EndedJune 30,


At June 30, 2020, the weighted-average remaining lease term for the building, copier and postage leases was 14.40 years and the weighted-average discount rate was 2.41%. At December 31, 2019, the weighted-average remaining lease term for the building, copiers and postage machines leases was 14.98 years and the weighted-average discount rate was 2.42%. The discount rates were determined using the bank’s incremental borrowing rate for bonds for terms relative to the lease terms. The following are the undiscounted cash flows for the operating leases at June 30, 2020:

Maturities ofLease Liabilities

Remainder of 2020 1,364$ 2021 2,779 2022 2,858 2023 2,835 2024 3,051 Thereafter 38,117 Total undiscounted cash flows 51,004 Less interest expense 7,034 Lease liability 43,970$

The lease expense for leases with terms of 12 months or less was $10 and $54 for the three months ended June 30, 2020, and 2019, respectively. The lease expense for leases with terms of 12 months or less was $18 and $107 for the six months ended June 30, 2020, and 2019, respectively.

NOTE 5 — COMMITMENTS AND CONTINGENCIES

The bank is primarily liable for its portion of Systemwide debt obligations. Additionally, the bank is jointly and severally liable for the consolidated Systemwide bonds and notes of the other System banks. Total consolidated bank and Systemwide obligations of the System at June 30, 2020, were approximately $310.21 billion. In the normal course of business, the bank has various outstanding commitments and contingent liabilities, including the possibility of actions against the bank in which claims for monetary damages may be asserted. Management and legal counsel are not aware of any other pending lawsuits or actions. Upon the basis of current information, management and legal counsel are of the opinion that the ultimate liability, if any, resulting from lawsuits or other pending actions will not be material in relation to the financial position, results of operations or cash flows of the bank.


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NOTE 6 — FAIR VALUE MEASUREMENTS

Authoritative accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. See Note 2, “Summary of Significant Accounting Policies,” of the 2019 Annual Report for a more complete description. Assets and liabilities measured at fair value on a recurring basis at June 30, 2020, for each of the fair value hierarchy levels are summarized below:

Quoted Pricesin Active Significant Significant

Markets for Observable UnobservableIdentical Assets Inputs Inputs

Total (Level 1) (Level 2) (Level 3)Assets:Federal funds and other overnight funds 309,112$ -$ 309,112$ -$ Available-for-sale investments Agency-guaranteed debt 127,065 - 127,065 - Corporate debt 370,513 - 370,513 - Mortgage-backed securities 4,591,374 - 4,466,164 125,210 U.S. Treasury securities 325,698 - 325,698 - Asset-backed securities 149,330 - 149,330 - Other available-for-sale investments 25,110 - - 25,110 Derivative assets 926 - 926 - Assets held in nonqualified benefit trusts 1,001 1,001 - - Collateral assets 68,364 68,364 - - Total assets 5,968,493$ 69,365$ 5,748,808$ 150,320$

Liabilities:Derivative liabilities 123,410$ -$ 123,410$ -$ Letters of credit 1,777 - - 1,777 Total liabilities 125,187$ -$ 123,410$ 1,777$

Fair Value Measurement


— 36 —

The table below represents a reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the period from March 31, 2020, to June 30, 2020:

LiabilitiesAgricultural

Mortgage- Mortgage-Backed Backed Letters of

Securities Securities Credit NetBalance at March 31, 2020 40,976$ 26,470$ 830$ 66,616$

Net gains included in other comprehensive income 85 13 - 98 Purchases, issuances and (settlements) 125,125 (1,373) 947 122,805 Transfers out of Level 3 (40,976) - - (40,976) Balance at June 30, 2020 125,210$ 25,110$ 1,777$ 148,543$

The amount of gains/losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held at June 30, 2020 - - - - The amount of gains/losses for the period included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets or liabilities still held at June 30, 2020 85$ 13$ -$ 98$

Assets

The table below represents a reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the period from January 1, 2020, to June 30, 2020:

There were transfers of assets out of Level 3 to other levels during the six months ended June 30, 2020. Agricultural mortgage-backed securities (AMBS) were included in Level 3 due to limited activity or less transparency around inputs to their valuation. Mortgage-backed securities (MBS) were included in Level 3 since their valuation was based on Level 3 criteria (broker quotes). The liability for letters of credit was included in Level 3 because the valuation, based on fees charged for similar agreements, may not closely correlate to a fair value for instruments not regularly traded in the secondary market.


Mortgage- Mortgage-Backed Backed Letters of

Securities Securities Credit NetBalance at January 1, 2020 -$ 29,051$ 830$ 28,221$ Net gains included in other comprehensive income 193 552 - 745 Purchases, issuances and (settlements) 165,993 (4,493) 947 160,553 Transfers out of Level 3 (40,976) - - (40,976) Balance at June 30, 2020 125,210$ 25,110$ 1,777$ 148,543$

The amount of gains/losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held at June 30, 2020 - - - - The amount of gains/losses for the period included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets or liabilities still held at June 30, 2020 193$ 552$ -$ 745$

Assets


— 37 —

Assets and liabilities measured at fair value on a nonrecurring basis at June 30, 2020, for each of the fair value hierarchy levels are summarized below:



Total (Level 1) (Level 2) (Level 3)Assets:Loans 11,080$ -$ -$ 11,080$ Total assets 11,080$ -$ -$ 11,080$

Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis at December 31, 2019, for each of the fair value hierarchy levels are summarized below:



Total (Level 1) (Level 2) (Level 3)Assets:Federal funds and other overnight funds 374,344$ -$ 374,344$ -$ Available-for-sale investments Agency-guaranteed debt 138,933 - 138,933 - Corporate debt 457,045 - 457,045 - Mortgage-backed securities 4,307,005 - 4,307,005 - U.S. Treasury securities 200,114 - 200,114 - Asset-backed securities 162,995 - 162,995 - Other available-for-sale investments 29,051 - - 29,051 Derivative assets 1,853 - 1,853 - Assets held in nonqualified benefit trusts 890 890 - - Collateral assets 17,670 17,670 - - Total assets 5,689,900$ 18,560$ 5,642,289$ 29,051$

Liabilities:Derivative liabilities 54,919$ -$ 54,919$ -$ Letters of credit 830 - - 830 Total liabilities 55,749$ -$ 54,919$ 830$



— 38 —

The following table represents a reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the period from March 31, 2019, to June 30, 2019:


Asset- Mortgage- Mortgage-Backed Backed Backed Letters of

Securities Securities Securities Credit NetBalance at March 31, 2019 25,016$ 52,430$ 34,487$ 618$ 111,315$ Net (losses) gains included in other comprehensive income - 76 605 - 681 Purchases, issuances and settlements - 40,262 (3,120) (129) 37,271 Transfers out of Level 3 (25,016) (52,430) - - (77,446) Balance at June 30, 2019 -$ 40,338$ 31,972$ 489$ 71,821$

The amount of gains/losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held at June 30, 2019 - - - - - The amount of gains/losses for the period included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets or liabilities still held at June 30, 2019 -$ 76$ 605$ -$ 681$

Assets

The following table represents a reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the period from January 1, 2019, to June 30, 2019:


Asset- Mortgage- Mortgage-Backed Backed Backed Letters of

Securities Securities Securities Credit TotalBalance at January 1, 2019 -$ -$ 35,708$ 676$ 35,032$ Net gains included in other comprehensive income 16 218 1,045 - 1,279 Purchases, issuances and settlements 25,000 92,550 (4,781) (187) 112,956 Transfers out of Level 3 (25,016) (52,430) - - (77,446) Balance at June 30, 2019 -$ 40,338$ 31,972$ 489$ 71,821$

The amount of gains/losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets or liabilities still held at June 30, 2019 - - - - - The amount of gains/losses for the period included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets or liabilities still held at June 30, 2019 16$ 218$ 1,045$ -$ 1,279$

Assets

There were transfers of assets out of Level 3 to other levels during the three and six months ended June 30, 2019. AMBS were included in Level 3 due to limited activity or less transparency around inputs to their valuation. MBS and asset-backed securities were included in Level 3 due to the fact that their valuation was based on Level 3 criteria (broker quotes). The liability for letters of credit were included in Level 3 because their valuation, based on fees currently charged for similar agreements, did not closely correlate to a fair value for instruments not regularly traded in the secondary market.


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Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2019, for each of the fair value hierarchy levels are summarized below:



Total (Level 1) (Level 2) (Level 3)Assets:Loans 11,093$ -$ -$ 11,093$

Total assets 11,093$ -$ -$ 11,093$


Financial assets and financial liabilities measured at carrying amounts and not measured at fair value on the balance sheet for each of the fair value hierarchy values are summarized as follows:

June 30, 2020:Quoted Prices

in Active Significant SignificantTotal Markets for Observable Unobservable Total

Carrying Identical Assets Inputs Inputs FairAmount (Level 1) (Level 2) (Level 3) Value

Assets:Cash 251,986$ 251,986$ -$ -$ 251,986$ Net loans 20,624,184 - - 21,204,798 21,204,798 Total assets 20,876,170$ 251,986$ -$ 21,204,798$ 21,456,784$

Liabilities:Systemwide debt securities 25,022,687$ -$ -$ 25,463,086$ 25,463,086$ Total liabilities 25,022,687$ -$ -$ 25,463,086$ 25,463,086$

Fair Value Measurement Using

December 31, 2019:


Total Markets for Observable Unobservable TotalCarrying Identical Assets Inputs Inputs FairAmount (Level 1) (Level 2) (Level 3) Value

Assets:Cash 47,606$ 47,606$ -$ -$ 47,606$ Net loans 19,486,806 - - 19,725,502 19,725,502 Total assets 19,534,412$ 47,606$ -$ 19,725,502$ 19,773,108$

Liabilities:Systemwide debt securities 23,473,906$ -$ -$ 23,656,235$ 23,656,235$ Total liabilities 23,473,906$ -$ -$ 23,656,235$ 23,656,235$

Fair Value Measurement Using

Valuation Techniques

As more fully discussed in Note 2, “Summary of Significant Accounting Policies” of the 2019 Annual Report, authoritative accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair values of financial instruments represent the estimated amount to be received to sell an asset or paid to transfer or extinguish a liability among willing participants at the reporting date. Due to the uncertainty of expected cash flows resulting from financial instruments, the use of different assumptions and


— 40 —

valuation methodologies could significantly affect the estimated fair value amounts. Accordingly, certain of the estimated fair values may not be indicative of the amounts for which the financial instruments could be exchanged in a current or future market transaction.

Uncertainty of Fair Value Measurements For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the significant unobservable inputs used in the fair value measurement of the mortgage-backed securities are vendor pricing, prepayment rates, probability of default and loss severity in the event of default inclusive of some uncertainty at the reporting date. Quoted market prices may not be available for the instruments presented below. Accordingly, fair values are based on internal models that consider judgments regarding anticipated cash flows, future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. Significant increases (decreases) in any of those inputs in isolation would have resulted in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates. These estimates involve uncertainties and matters of judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Information About Recurring and Nonrecurring Level 3 Fair Value Measurements

June 30, 2020 December 31, 2019 Valuation Technique(s)

Unobservable Input June 30, 2020 December 31, 2019

2.4% - 38.0% / 2.4% - 38.0% /25,110$ 29,051$ 8.70% 9.40%

125,210 -

Range of Inputs / Weighted Average

Other investments Discounted cash flow

Prepayment rates

Fair Value at

- - Mortgage-backed securities Vendor priced -

In regard to impaired loans and OPO, it is not practicable to provide specific information on inputs as each collateral property is unique. System institutions utilize appraisals to value these loans and OPO and consider unobservable inputs such as income and expense, comparable sales, replacement cost and comparability adjustments.

Information about Recurring and Nonrecurring Level 2 Fair Value Measurements Valuation Technique(s) Input

Federal funds sold Carrying value Par/principal

Available-for-sale investment securities

Quoted prices Discounted cash flow

Price for similar security Constant prepayment rate Appropriate interest rate yield curve

Interest rate caps Discounted cash flow Appropriate interest rate yield curve Annualized volatility

Interest rate swaps Discounted cash flow Benchmark yield curve Counterparty credit risk Volatility


— 41 —

NOTE 7 — ASSET/LIABILITY OFFSETTING

Derivative transactions with swap dealers include bilateral collateral and netting agreements that require the net settlement of covered contracts. Notwithstanding collateral and netting provisions, our derivative assets and liabilities are not offset on the accompanying balance sheets. The amount of collateral received or pledged is calculated on a net basis by counterparty. The following table summarizes overnight investments, derivative assets and liabilities and amounts of collateral exchanged pursuant to our agreements.

Gross Amounts of InvestmentAssets/Liabilities Cash SecuritiesPresented on the Collateral Received/Pledged

June 30, 2020 Balance Sheet Pledged as Collateral Net AmountAssets: Interest rate swaps and other derivatives 927$ -$ -$ 927$ Federal funds sold and overnight investments 309,113$ -$ -$ 309,113$ Liabilities: Interest rate swaps and other derivatives 123,410$ (68,360)$ -$ 55,050$

December 31, 2019Assets: Interest rate swaps and other derivatives 1,852$ -$ -$ 1,852$ Overnight repurchase agreements 125,000$ -$ -$ 125,000$ Liabilities: Interest rate swaps and other derivatives 54,919$ (17,670)$ -$ 37,249$

Amounts Not Offset on the Balance Sheet

NOTE 8 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The bank maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. The bank’s goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet liabilities so that the net interest margin is not adversely affected by movements in interest rates. The bank considers the strategic use of derivatives to be a prudent method of managing interest rate sensitivity, as it prevents earnings from being exposed to undue risk posed by changes in interest rates. The bank may enter into derivative transactions to lower funding costs, diversify sources of funding, alter interest rate exposures arising from mismatches between assets and liabilities, or better manage liquidity. Under interest rate swap arrangements, the bank agrees with other parties to exchange, at specified intervals, payment streams calculated on a specified notional amount, with at least one stream based on a specified floating-rate index. The bank may purchase interest rate options, such as caps, in order to reduce the impact of rising interest rates on its floating-rate debt.


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At June 30, 2020, the bank held interest rate caps with a notional amount of $195.0 million and a net fair value asset of $186, pay-fixed interest rate swaps with a notional amount of $825.0 million and a net fair value liability of $123.4 million, and receive-fixed interest rate swaps with a notional amount of $150.0 million and a net fair value asset of $740. The primary types of derivative instruments used and the activity (notional amount of derivatives) during the six months ended June 30, 2020, are summarized in the following table:

Receive-Fixed Pay-Fixed Interest Rate Swaps Swaps Caps Total

Balance at January 1, 2020 150,000$ 825,000$ 195,000$ 1,170,000$ Additions - - - - Maturities/Amortizations - - - - Balance at June 30, 2020 150,000$ 825,000$ 195,000$ 1,170,000$

To minimize the risk of credit losses, the bank maintains collateral agreements to limit exposure to agreed-upon thresholds, deals with counterparties that have an investment grade or better credit rating from a major rating agency, and monitors the credit standing and levels of exposure to individual counterparties. The bank typically enters into master agreements that contain netting provisions. These provisions allow the bank to require the net settlement of covered contracts with the same counterparty in the event of default by the counterparty on one or more contracts. At June 30, 2020, and December 31, 2019, counterparties’ credit exposure to the bank was $55.3 million and $35.5 million, respectively. At June 30, 2020, the bank had posted $68.4 million of cash as collateral, and no counterparty had been required to post collateral. At December 31, 2019, the bank had posted $17.7 million of cash as collateral, and no counterparty had been required to post collateral.

Derivative – Counterparty Exposure

The following table represents the credit ratings of counterparties to whom the bank had credit exposure at June 30, 2020:

ExposureLess Than One More Than Total Gains Collateral Net of

Year to Five Years Five Years (Losses) * Exposure Posted CollateralMoody’s Credit RatingAa2 (3,204)$ (84,712)$ (87,916)$ (87,916)$ (56,310)$ (31,606)$ Aa3 (2,367) (33,367) (35,734) (35,734) (12,050) (23,684) A1 11 - 11 11 - 11 Total (5,560)$ (118,079)$ (123,639)$ (123,639)$ (68,360)$ (55,279)$

Remaining Years to Maturity

* Represents gain or loss positions on derivative instruments with individual counterparties. Net gains or losses represent the exposure to credit losses estimated by calculating the cost, on a present value basis, to replace all outstanding derivative contracts within a maturity category. Within each maturity category, contracts in a loss position are netted against contracts in a gain position with the same counterparty.

Fair Value Hedges For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item (principally, debt securities) attributable to the hedge risk are recognized in current earnings. The bank includes the gain or loss on the hedged items in the same line item (interest expense) as the offsetting loss or gain on the related interest rate swaps. At June 30, 2020, the bank had a carrying amount of $150.7 million for the hedged items, which included $740 for the cumulative amount of fair value hedging adjustments. At December 31, 2019, the bank had a carrying amount of $150.0 million for the hedged items, which included $95 for the cumulative amount of fair value hedging adjustments.


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Cash Flow Hedges The bank’s derivative instruments at June 30, 2020, and December 31, 2019, which are designated and qualify as a cash flow hedge, all met the standards for accounting treatment that presume full effectiveness. Thus, the effective portion of the gain or loss on the derivative was reported as a component of other comprehensive income (OCI). In the next 12 months, we expect to reclassify to earnings losses of $233 recorded in accumulated other comprehensive loss (AOCL) as of June 30, 2020. These amounts will offset the cash flows associated with the hedged forecasted transactions.

Balance Sheet Fair Value Fair Value Balance Sheet Fair Value Fair ValueLocation June 30, 2020 December 31, 2019 Location June 30, 2020 December 31, 2019

Interest rate caps Other assets 186$ 98$ Other liabilities -$ -$ Pay-fixed swaps Other assets - 1,660 Other liabilities (123,410) (54,919)

2020 2019 2020 2019Interest rate caps (88)$ 165$ Interest expense (200)$ (129)$ Pay-fixed swaps 72,474 45,073 Interest (expense) income (1,640) 230

Gain (Loss) Recognized in AOCL on Derivatives at June 30,

Amount of Gain (Loss) Reclassified FromAOCL at June 30,

NOTE 9 –– CAPITAL

In June of 2020, the association Class A common stockholders of the bank approved an amendment to the bank’s Capitalization Bylaws. The amendment became effective in June of 2020 and enlarged the authorized number of shares of preferred stock that may be issued by the bank to that number of shares that will result in a total par value of issued and outstanding preferred stock not to exceed $1.5 billion at any one time. The FCA sets minimum regulatory capital requirements for banks and associations. These requirements are split into minimum requirements for risk-adjusted ratios and non-risk-adjusted ratios. The risk-adjusted ratios include common equity tier 1, tier 1 capital, total capital, and permanent risk-based capital ratios. The non-risk-adjusted ratios include tier 1 leverage and unretained earnings equivalents (UREE) leverage ratios. The regulatory minimum capital ratios include fully phased-in capital conservation buffers that became effective for us January 1, 2020. There was no phase-in period for the tier 1 leverage. As of June 30, 2020, the bank exceeded all regulatory capital requirements. The following table reflects the bank’s capital ratios:

Risk-adjustedCommon equity tier 1 ratio 7.00% 9.18% 9.91%Tier 1 capital ratio 8.50 14.94 16.01Total capital ratio 10.50 15.04 16.12Permanent capital ratio 7.00 14.95 16.03

Non-risk-adjustedTier 1 leverage ratio 5.00% 6.60% 7.26%UREE leverage ratio 1.50 2.65 3.06

Regulatory Requirements

Including Capital Conservation Buffers

As ofJune 30, 2020

As of December 31, 2019


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Risk-adjusted assets have been defined by FCA regulations as the statement of condition assets and off-balance sheet commitments adjusted by various percentages, depending on the level of risk inherent in the various types of assets.

The ratios are based on a three-month average daily balance in accordance with FCA regulations and are calculated as follows:

• Common equity tier 1 ratio is statutory minimum purchased borrower stock, other required borrower stock held for a minimum of 7 years, allocated equities held for a minimum of 7 years or not subject to revolvement, unallocated retained earnings, paid-in capital, less certain regulatory required deductions including the amount of allocated investments in other System institutions, and the amount of purchased investments in other System institutions under the corresponding deduction approach, divided by average risk-adjusted assets.

• Tier 1 capital ratio is common equity tier 1 plus noncumulative perpetual preferred stock, divided by average risk-adjusted assets.

• Total capital is tier 1 capital plus other required borrower stock held for a minimum of 5 years, allocated equities held for a minimum of 5 years, subordinated debt and limited-life preferred stock greater than 5 years to maturity at issuance subject to certain limitations, allowance and reserve for credit losses under certain limitations less certain investments in other System institutions under the corresponding deduction approach, divided by average risk-adjusted assets.

• Permanent capital ratio (PCR) is all at-risk borrower stock, any allocated excess stock, unallocated retained earnings, paid-in capital, subordinated debt and preferred stock subject to certain limitations, less certain allocated and purchased investments in other System institutions, divided by PCR risk-adjusted assets.

• Tier 1 leverage ratio is tier 1 capital, including regulatory deductions, divided by average assets less regulatory deductions subject to tier 1 capital.

• UREE leverage ratio is unallocated retained earnings, paid-in capital, allocated surplus not subject to revolvement less certain regulatory required deductions including the amount of allocated investments in other System institutions divided by average assets less regulatory deductions subject to tier 1 capital.

If the capital ratios fall below the minimum regulatory requirements, capital distributions (equity redemptions, dividends and patronage) and discretionary bonus payments to senior officers are restricted or prohibited without prior FCA approval.


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The components of the bank’s risk-adjusted capital, based on 90-day average balances, were as follows at June 30, 2020:

(dollars in thousands)

Common Equity Tier 1

RatioTier 1 Capital

RatioTotal Capital

RatioPermanent

Capital RatioNumerator:

Unallocated retained earnings 883,035$ 883,035$ 883,035$ 883,035$ Common Cooperative Equities:

Purchased other required stock >7 years 298,556 298,556 298,556 298,556 Allocated stock >7 years 36,042 36,042 36,042 36,042 Allocated equities:

Allocated equities held >7 years 52,452 52,452 52,452 52,452 Noncumulative perpetual preferred stock - 700,000 700,000 700,000 Allowance for loan losses and reserve for

credit losses subject to certain limitations - - 13,011 - Regulatory Adjustments and Deductions:

Amount of allocated investments in other System institutions (152,298) (152,298) (152,298) (152,298)

Other regulatory required deductions (280) (280) (280) (280) Total 1,117,507$ 1,817,507$ 1,830,518$ 1,817,507$

Denominator:Risk-adjusted assets excluding allowance 12,167,176 12,167,176$ 12,167,176$ 12,167,176$

Regulatory Adjustments and Deductions:Allowance for loan losses - - - (11,179)

Total 12,167,176$ 12,167,176$ 12,167,176$ 12,155,997$

The components of the bank’s risk-adjusted capital, based on 90-day average balances, were as follows at December 31, 2019:

(dollars in thousands)Common Equity

Tier 1 RatioTier 1 Capital

RatioTotal Capital

RatioPermanent

Capital RatioNumerator:

Unallocated retained earnings 924,451$ 924,451$ 924,451$ 924,451$ Common Cooperative Equities:

Purchased other required stock >7 years 281,395 281,395 281,395 281,395 Allocated stock >7 years 36,042 36,042 36,042 36,042 Allocated equities:

Allocated equities held >7 years 45,746 45,746 45,746 45,746 Noncumulative perpetual preferred stock - 700,000 700,000 700,000 Allowance for loan losses and reserve for

credit losses subject to certain limitations - - 12,525 - Regulatory Adjustments and Deductions:

Amount of allocated investments in other System institutions (149,553) (149,553) (149,553) (149,553)

Other regulatory required deductions (297) (297) (297) (297) Total 1,137,784$ 1,837,784$ 1,850,309$ 1,837,784$

Denominator:Risk-adjusted assets excluding allowance 11,477,211$ 11,477,211$ 11,477,211$ 11,477,211$

Regulatory Adjustments and Deductions:Allowance for loan losses - - - (10,845)

Total 11,477,211$ 11,477,211$ 11,477,211$ 11,466,366$


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The components of the bank’s non-risk-adjusted capital, based on 90-day average balances, were as follows at June 30, 2020:


Tier 1 Leverage

Ratio

UREE Leverage

RatioNumerator:

Unallocated retained earnings 883,035$ 883,035$ Common Cooperative Equities:

Purchased other required stock >7 years 298,556 - Allocated stock >7 years 36,042 -

Allocated equities:Allocated equities held > 7 years 52,452 -

Noncumulative perpetual preferred stock 700,000 - Regulatory Adjustments and Deductions:

Amount of allocated investments in other System institutions (152,298) (152,298) Other regulatory required deductions (280) -

Total 1,817,507$ 730,737$ Denominator:

Total Assets 27,705,391 27,705,391$ Regulatory Adjustments and Deductions:

Regulatory deductions included in tier 1 capital (157,419) (157,419) Total 27,547,972$ 27,547,972$

The components of the bank’s non-risk-adjusted capital, based on 90-day average balances, were as follows at December 31, 2019:

(dollars in thousands)Tier 1

Leverage RatioUREE

Leverage RatioNumerator:

Unallocated retained earnings 924,451$ 924,451$ Common Cooperative Equities:

Purchased other required stock >7 years 281,395 - Allocated stock >7 years 36,042 -

Allocated equities:Allocated equities held > 7 years 45,746 -

Noncumulative perpetual preferred stock 700,000 - Regulatory Adjustments and Deductions:

Amount of allocated investments in other System institutions (149,553) (149,553) Other regulatory required deductions (297) -

Total 1,837,784$ 774,898$ Denominator:

Total Assets 25,488,006$ 25,488,006 Regulatory Adjustments and Deductions:

Regulatory deductions included in tier 1 capital (160,010) (160,010) Total 25,327,996$ 25,327,996$


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NOTE 10 — EMPLOYEE BENEFIT PLANS

In addition to pension benefits, the bank provides certain health care benefits to qualifying retired employees (other postretirement benefits). These benefits are not characterized as multiemployer and, consequently, the liability for these benefits is included in other liabilities. Bank employees hired after January 1, 2004, may be eligible for retiree medical benefits for themselves and their spouses at their expense and will be responsible for 100% of the related premiums. The following table summarizes the components of net periodic benefit costs for the bank’s other postretirement benefit costs for the six months ended June 30, 2020, and the same period for 2019:

2020 2019

Service cost 113$ 111$ Interest cost 208 258Amortization of prior service cost (40) (39)

281$ 330$

Other Postretirement Benefits

The components of net periodic benefit cost other than the service cost component are included in other components of net periodic postretirement benefit cost in the income statements.

The structure of the district’s defined benefit pension plan is characterized as multiemployer, since neither the assets, liabilities nor cost of any plan is segregated or separately accounted for by participating employers (bank and associations).

NOTE 11 — ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss (AOCL) includes the accumulated balance of certain gains, losses or costs for which values are included in assets or liabilities on the balance sheets, but which have not yet been recognized in earnings. For the bank, these elements include unrealized gains or losses on the bank’s available-for-sale (AFS) investment portfolio, amortization of retirement benefit elements and changes in the value of cash flow derivative instruments.


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The following is a summary of the components of AOCL and the changes that occurred during the six months ended June 30, 2020:

Total

Unrealized Gains on

Investments

Postretirement Benefit Plans

Cash Flow Derivative

Instruments Balance at January 1, 2020 (51,631)$ 3,212$ (801)$ (54,042)$ Change in unrealized gains on AFS securities:

Change in net unrealized gains on AFS securities 89,150 89,150 Net change in unrealized gains on AFS securities 89,150 89,150

Change in postretirement benefit plans: Amounts amortized into net periodic expense:

Amortization of prior service credits (40) (40) Net change in postretirement benefit plans (40) (40)

Change in cash flow derivative instruments:Unrealized loss on cash flow derivative instruments (75,197) (75,197) Reclassification of loss recognized in interest expense 4,652 4,652

Net change in cash flow derivative instruments (70,545) (70,545) Total other comprehensive income (loss) 18,565 89,150 (40) (70,545) Balance at June 30, 2020 (33,066)$ 92,362$ (841)$ (124,587)$

The following is a summary of the components of AOCL and the changes that occurred during the six months ended June 30, 2019:

Total

Unrealized (Losses) Gains on Investments

Postretirement Benefit Plans

Cash Flow Derivative

Instruments Balance at January 1, 2019 (81,693)$ (74,541)$ (27)$ (7,125)$ Change in unrealized gains on AFS securities:

Net change in unrealized gains on AFS securities 82,853 82,853 Gain on sale reclassifications to net income (7,516) (7,516)

Net change in unrealized gains on AFS securities 75,337 75,337 Change in postretirement benefit plans:

Amounts amortized into net periodic expense:Amortization of prior service credits (39) (39) Net change in postretirement benefit plans (39) (39)

Change in cash flow derivative instruments:Unrealized loss on cash flow derivative instruments (45,238) (45,238) Reclassification of gain recognized in interest expense (101) (101)

Net change in cash flow derivative instruments (45,339) (45,339) Total other comprehensive income (loss) 29,959 75,337 (39) (45,339) Balance at June 30, 2019 (51,734)$ 796$ (66)$ (52,464)$

The following table summarizes reclassifications from AOCL to the statements of comprehensive income for the six months ended June 30, 2020, and the same period for 2019:

Location of Losses (Gains) Recognized inComponent of AOCL the Statements of Comprehensive Income

2020 2019Amortization of net credits on post-

retirement benefit plan (40)$ (39)$ Salaries and employee benefitsAmortization of cash flow hedges 4,652 (101) Interest expenseTotal reclassifications 4,612$ (140)$

from AOCLAmount Reclassified


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NOTE 12 — SUBSEQUENT EVENTS

The bank has evaluated subsequent events through August 6, 2020, which is the date the financial statements were issued. There are no significant subsequent events requiring disclosure as of August 6, 2020. On July 15, 2020, the bank issued $350.0 million of Class B noncumulative subordinated perpetual preferred stock, Series 4 (Class B-4 preferred stock), representing three hundred fifty thousand shares at $1,000 per share par value, for net proceeds of $346.2 million with estimated issuance costs of $3.8 million. Dividends on the Class B-4, if declared by the board of directors at its sole discretion, are noncumulative and are payable quarterly in arrears on the fifteenth day of March, June, September and December in each year, commencing September 15, 2020, at an annual fixed rate of 5.70% of par value of $1,000 per share up to, but excluding, September 15, 2025, from and after which date will be paid at an annual rate of the five-year Treasury rate as of the most recent five-year reset dividend determination date plus 5.415%. The Class B-4 is not mandatorily redeemable at any time, but may be redeemed in whole or part at the option of the bank, with prior approval from the FCA, on any dividend payment date on or after September 15, 2025. The Class B-4 ranks pari passu with respect to the existing Class B-1, Class B-2 and Class B-3 preferred stock and senior to all of the bank’s other outstanding capital stock. For regulatory purposes, the Class B-4 preferred stock is included in permanent capital, total capital and tier 1 capital within certain limitations. On July 20, 2020, the bank notified holders of the bank's 10% Class B perpetual non-cumulative subordinated preferred stock, Series 1 (Class B-1), of its right to redeem all of the outstanding Class B-1 preferred stock at a total price of $1,000 per share, together with an amount equal to all dividends accrued and unpaid up to, but not including, the redemption date. The redemption date is August 19, 2020, and the redemption price is equal to $1,017.777 per share or $305,333,333.33 in total. NOTE 13 — COMBINED DISTRICTWIDE FINANCIAL STATEMENTS

The accompanying financial statements exclude financial information of the bank’s affiliated associations. The bank and its affiliated associations are collectively referred to as the “Texas District.” The bank separately publishes certain unaudited combined financial information of the Texas District, including a condensed statement of condition and statement of income, which can be found on the bank’s website at www.farmcreditbank.com. Such information is not incorporated by reference to, and should not be considered part of, this quarterly report.


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ADDITIONAL REGULATORY INFORMATION (unaudited) Disclosure Map

The following table summarizes the interim disclosure requirements and indicates where each matter is disclosed in this quarterly report.

Disclosure Requirement Description June 30, 2020 Quarterly Report Reference

Scope of Application Corporate entity and structure Page 50 Capital Structure Regulatory capital components Page 51 Capital Adequacy Risk-weighted assets Page 52 Regulatory capital ratios Page 53 Capital Buffers Quantitative disclosures Page 53 Credit Risk Summary of exposures

Page 53 Industry distribution Page 53 Contractual maturity Page 54 Geographic distribution Page 54 Impaired loans and allowance for credit losses Note 3 – Pages 26-33 Counterparty Credit Risk-Related Exposures Counterparty exposures Page 54 Credit Risk Mitigation Exposures with reduced capital requirements Page 55 Securitization Securitization exposures Page 55 Equities General description Page 55 Interest Rate Risk for Non-Trading Activities Interest rate sensitivity Page 56

The following disclosures contain regulatory disclosures as required under FCA Regulation 628.63 for risk-adjusted ratios: common equity tier 1, tier 1 capital and total capital. Refer to Note 9 of the accompanying financial statements for information regarding the statutorily required permanent capital ratio. As required, these disclosures are made available for at least three years, and can be accessed at Farm Credit Bank of Texas’ website at www.farmcreditbank.com. FCA Regulation Section 628.62(a) requires each System bank to provide timely public disclosures at the end of each calendar quarter. Qualitative disclosures that typically do not change each quarter may be disclosed annually after the end of the fourth calendar quarter, provided that any significant changes are disclosed in the interim. No other significant qualitative changes occurred for the second quarter of 2020 to be included within this disclosure as compared to the disclosures as of December 31, 2019. Scope of Application The disclosures herein exclude information of the bank’s affiliated associations. The bank and its affiliated associations are collectively referred to as the “Texas District.” The bank has no subsidiaries; therefore, the financial statements are only those of the bank and are not consolidated with any other entity.


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Capital Structure The following table provides a summary of the bank’s capital structure at June 30, 2020:


Three-Month Average Daily

BalanceCommon equity tier 1 capital (CET1)Common cooperative equities:

Purchased other required stock >7 years 298,556$ Allocated stock >7 years 36,042

Other required member purchased stock - Allocated equities:

Qualified allocated equities subject to retirement 52,452Nonqualified allocated equities subject to retirement - Nonqualified allocated equities not subject to retirement -

Unallocated retained earnings 883,035Paid-in capital - Regulatory adjustments and deductions made to CET1 (152,578)

Total CET1 1,117,507$

Additional tier 1 capital (AT1)Noncumulative perpetual preferred stock 700,000$ Regulatory adjustments and deductions made to AT1 capital - Total AT1 capital 700,000

Total tier 1 capital 1,817,507$

Tier 2 capitalCommon cooperative equities not included in CET1 -$

Tier 2 capital elements (allowance for loan losses) 13,011Regulatory adjustments and deductions made to Tier 2 capital - Total tier 2 capital (T2) 13,011$

Total capital 1,830,518$


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Capital Adequacy and Capital Buffers The bank’s risk-adjusted regulatory capital ratios are calculated by dividing the relevant total capital elements by risk-weighted assets. The following table provides the bank’s risk-weighted assets at June 30, 2020:

Three-MonthAverage Daily

(dollars in thousands) BalanceOn-Balance Sheet Assets:

Exposures to sovereign entities -$ Exposures to supranational entities and Multilateral Development Banks - Exposures to government-sponsored entities (direct notes to associations) 2,718,493 Exposures to depository institutions, foreign banks and credit unions 331 Exposures to public sector entities - Corporate exposures, including borrower loans and exposures to other financing institutions 6,806,313 Residential mortgage exposures - Past due and nonaccrual exposures 25,585 Securitization exposures 27,380 Exposures to other assets 1,050,638

Total Risk-Weighted Assets, On-Balance Sheet 10,628,740

Off-Balance Sheet:Letters of Credit 52,598 Commitments 1,476,824 Repo-styled transactions - Over-the-Counter Derivatives 258 Unsettled transactions - Cleared transactions - All other off-balance sheet exposures 8,756

Total Risk-Weighted Assets, Off-Balance Sheet 1,538,436 Total Risk-Weighted Assets Before Adjustments 12,167,176 Additions:

Intra-System Equity Investments 152,578 Deductions:

Regulatory Capital Deductions (152,578) Total Standardized Risk-Weighted Assets 12,167,176$


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Capital and Leverage Ratios As of June 30, 2020, the bank was well-capitalized and exceeded all capital requirements. The bank’s excess leverage of 1.60% is equal to the tier 1 leverage ratio minus the minimum tier 1 leverage ratio requirement. Because the bank’s capital and leverage ratios exceeded the minimum regulatory requirements of 10.50% and 5.00%, respectively, the bank currently has no limitations on its distributions and discretionary bonus payments. The aggregate amount of eligible retained income was $24,147 as of June 30, 2020. The regulatory minimum capital ratios include fully phased-in capital conservation buffers that became effective January 1, 2020. There was no phase-in period for the tier 1 leverage ratio.

Ratios as of June 30, 2020

Calculated Buffers

Common equity tier 1 capital ratio 7.00% 9.18% 2.18%Tier 1 capital ratio 8.50 14.94 6.44Total capital ratio 10.50 15.04 4.54Tier 1 leverage ratio 5.00 6.60 1.60

Regulatory Requirements

Including Capital Conservation Buffers

Credit Risk System entities have specific lending authorities within their chartered territories. The bank is chartered to serve its associations in Texas, Alabama, Mississippi, Louisiana and most of New Mexico. Our chartered territory is referred to as the district. FCBT serves its chartered territory by lending to the district’s Federal Land Credit Association (FLCA) and Agricultural Credit Associations (ACAs). The allowance for loan losses is determined based on a periodic evaluation of the loan portfolio, which identifies loans that may be impaired based on characteristics such as probability of default (PD) and loss given default (LGD). Allowance needs by geographic region are only considered in circumstances that may not otherwise be reflected in the PD and LGD such as flooding or drought. There was no allowance attributed to a geographic area as of June 30, 2020. Refer to the Risk-Adjusted Asset table on page 52 for the bank’s total and average loans, investment securities, off-balance sheet commitments and over-the-counter (OTC) derivatives. The following table illustrates the bank's total exposure (including commitments) by loan type as of June 30, 2020.

Total ExposureDirect notes receivable from district associations 17,166,712$ Real estate mortgage 864,969 Production and intermediate term 1,213,287 Agribusiness

Loans to cooperatives 843,801 Processing and marketing 4,022,902 Farm-related business 287,802

Communications 651,069 Energy (rural utilities) 2,044,259 Water and waste disposal 214,697 Mission-related 2,347 Rural residential real estate 2,065 Leases 11,517 Loans to other financing institutions 75,186 Total 27,400,613$


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The following table provides an overview of the remaining contractual maturity of the bank’s credit risk portfolio categorized by exposure at June 30, 2020. The remaining contractual maturity for the bank’s direct notes from associations is included in the loans line item based on the contractual terms of the underlying association retail loans. Unfunded commitments for direct notes from associations reflects the aggregate remaining amount that the associations can borrow from the bank. It is included in the unfunded commitments line item within the due in one year or less column.

Due in Due after oneone year year through Due after

(dollars in thousands) or less five years five years TotalLoans 4,204,392$ 8,776,106$ 7,655,230$ 20,635,728$ Off-balance sheet commitments

Financial letters of credit 17,620 42,356 2,750 62,726 Performance letters of credit 4,403 8,638 - 13,041 Commercial letters of credit 1,883 843 - 2,726 Unfunded commitments 4,376,361 2,137,171 172,860 6,686,392

Investments 484,333 458,291 4,646,466 5,589,090 Derivatives (notional) 200,000 270,000 700,000 1,170,000 Total 9,288,992$ 11,693,405$ 13,177,306$ 34,159,703$

The following table illustrates the bank’s total exposure (including commitments) by geographic distribution based on the headquarters location of the underlying retail loans for the bank and affiliated associations as of June 30, 2020:

State PercentageTexas 48 %Alabama 6Mississippi 6Louisiana 3California 3All other states 34

100 %

Refer to Note 3 of the accompanying financial statements for amounts of impaired loans with or with no related allowance, loans in nonaccrual status and greater than 90 days past due, loans past due greater than 90 days and still accruing, the allowance at the end of each reporting period, charge-offs during the period, and changes in components of our allowance for credit losses.

Counterparty Credit Risk and Credit Risk Mitigation

The table below shows derivatives by underlying exposure type, segregated between interest rate caps, pay-fixed swaps and receive-fixed swaps, which were traded in OTC markets as of June 30, 2020.

Gross PositiveNotional Fair Values

Interest rate caps 195,000$ 186$ Pay-fixed swaps 825,000 - Receive-fixed swaps 150,000 740

Total Derivatives 1,170,000$ 926$


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The following table provides the total exposure covered by guarantees/credit derivatives for each separately disclosed credit risk portfolio and the risk-weighted asset amount associated with that exposure. The bank did not hold eligible financial collateral for its loan, investment and derivative portfolios at June 30, 2020.

Government Guaranteed 90-Day Risk Risk-WeightedAsset Type (dollars in thousands) Average Balance Weighting Amount

Investments 3,116,160$ 0% -$ Loans 2,233$ 0% - Total 3,118,393$ -$

Securitization

The bank currently only participates in credit-related securitizations as investors through the purchase of asset-backed securities (ABS) as included in its investment portfolio. The bank also holds securitization exposures through the purchase of U.S. government and agency guaranteed securities. The bank did not transfer any exposures that it had originated or purchased from a third party in connection with a securitization of assets as of June 30, 2020, nor did it have any outstanding exposures that it intended to be securitized as of June 30, 2020. The bank did not retain any credit-related re-securitization exposures as of June 30, 2020. Below is an overview of our purchased securitization exposures held as of June 30, 2020, by exposure type and categorized by risk-weighting band and risk-based capital approach. As of June 30, 2020, the bank did not hold any off-balance sheet securitization exposures nor were any securitization exposures deducted from capital.

ExposureRisk-Based Capital Amount

Description of Securitization Approach (dollars in thousands) Risk WeightingAgency MBS:

GNMA Standardized risk weighting 2,155,636 0%FNMA and FHLMC Standardized risk weighting 2,278,174 0%-20%

Total agency MBS 4,433,810$ Asset-backed securities:

Small Business Administration Standardized risk weighting 127,899 0%Asset-backed securities Gross-up 22,511 20%-100%

Total asset-backed securities 150,410$

Equities

The bank is a limited partner in certain Rural Business Investment Companies (RBICs) for various relationship and strategic reasons. These RBICs facilitate equity and debt investments in agriculture-related businesses that create growth and job opportunities in rural America. These investments are accounted for under the equity method, as the bank is considered to have significant influence. These investments are not publicly traded, and the book value approximates fair value. The bank had no unrealized gains or losses either carried on the balance sheet or recognized through earnings.

Life-to-Date As of June 30, 2020 Disclosed in (Losses) Recognized in(dollars in thousands) Other Assets Retained Earnings*RBICs 15,006$ (5,674)$

*Retained earnings is included in common equity tier 1 and total capital ratios.


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Interest Rate Risk

The following tables set forth the bank’s projected annual net interest income and market value of equity for interest rate movements as prescribed by policy, based on the bank’s interest-earning assets and interest-bearing liabilities at June 30, 2020:

Basis points: -7* +100 +200Change in net interest income 1.19% 1.08% 2.03%Change in market value of equity -0.02% -2.85% -11.73%

*When the 3-month Treasury bill is below 4.00%, the shock-down 200 scenario is replaced with a shock-down equal to half of the 3-month Treasury bill. The bank measures interest rate risk on a quarterly basis.

For interest rate risk management, the $700.0 million noncumulative perpetual preferred stock is included in liabilities.

Documents

Management’s Discussion and Analysis13.3%). Per the third estimate released by the U.S. Bureau of Economic Analysis, U.S. real gross domestic product (GDP) declined by 5.0% in the